Roth IRA Conversion

[dryost]

I am a 67-year old recent retiree, not self-employed. I have never needed to do an estimated quarterly filing before. I plan to do a $125,000 Roth conversion in the fourth quarter. My intent at this point is to pay the tax due on the conversion using my brokerage account (rather than having it deducted from my traditional IRA balance at the time of conversion).

Will I need to file a quarterly return in January?

Can I pay the IRS online at the time of conversion, and will this obviate the need to file a quarterly return?

If not, will this require me to file quarterly going forward?

Should I reconsider my source for the tax that will be due on the conversion?

Thanks!

[carolineb]

Hello @dryost, 

Congratulations on your recent retirement, I am looking forward to joining you in the next few years!

Once your IRA is converted to a Roth, you are correct in assuming that you will need to make an estimated tax payment in January in order to cover the additional tax liability that will be generated from the conversion. However, no additional form filing is necessary. 

Simply log onto IRS Direct Pay, choose Estimated Tax as your Reason for Payment, 1040 ES for Apply Payment To and 2024 as Tax Period for Payment. You can then have your account auto debited for the amount due. The IRS does not really care what the source is for this payment, as long as they get paid 🙂

When you file your 2024 return, be sure to enter the amount of your estimated payment in the Deductions and Credits section under Estimates and Other Taxes Paid so that you receive credit for that amount on your return. 

Since you will not have this income in any subsequent years, there is no need to ever make another estimated tax payment again. You can sit back and enjoy your retirement! See you on the golf course in a year or two. 

If this post has answered your questions, please give it a thumbs up. Thanks for reaching out! 

[K M W]

If you expect to owe over $1,000 when you prepare your tax return, then yes, you should make estimated quarterly payments. Generally speaking, the IRS assumes that income is earned ratably throughout the year, so they expect the quarterly payments to be paid ratably as well.  If your income varied during the year because, for example, you converted pre-tax retirement funds to a Roth IRA late in the year, you may be able to lower or eliminate the amount of one or more required installments by using the annualized income installment method.

If you do the Roth conversion between September 1 and December 31, your estimated tax payment for that income is due January 15th of the following year. You can choose to pay the estimated payment via sending in the Form 1040ES with your payment, or paying online directly at the IRS website.  If you pay the IRS at the time of conversion via using funds in your brokerage account, that is treated as making an estimated quarterly tax payment.

Making a quarterly tax payment this year does NOT obligate you to make quarterly payments in future years  - the trigger for paying estimates is based on whether or not you will owe over $1,000 when you file your tax return. If you believe you will owe over $1,000 on your 2025 tax return, then you will want to make estimated quarterly payments for that year (or have additional withholdings from other income sufficient to cover your total 2025 tax liability).

As to what funds you use to pay the estimated taxes - that is totally up to you. Just be aware the the IRS treats W2 and 1099R withholdings as being withheld ratably throughout the year, whereas making an estimated tax payment is deemed as being paid in that quarter.  So, if you need to "catch up" on making a payment for income that occurred earlier in the year, know that withholding taxes from a fourth quarter retirement plan distribution may be a better option than making a fourth quarter estimated tax payment.

, 

[dryost]

Thanks so much, Caroline! I am glad to hear that just settling the tab with IRS Direct Pay should prevent me from needing to file quarterlies going forward.

Actually, I will have additional Roth conversions in future years, up until it's RMD time at age 73.  But it sounds like I can use the same pretty simple approach each succeeding year, and not have to worry about filing form1040 ES every quarter. Thanks, and I hope your upcoming retirement is all you want it to be!

[VolvoGirl]

How are you going to pay the tax?  From a brokerage account?  Don't forget the brokerage sales will be taxable and increase your income.  Or I guess if  you pay it in 2025 it will be taxable on your 2025 return done in 2026.