@rogersdan164 wrote:
Thank for the prompt and detailed reply. I have a question about option 3 - the lump sum conversion with taxes with held at the time of the conversion. I would rather not reduce the amount of the conversion by the taxes. 1) Can I make a lump sum payment of the taxes in December from a non-retirement account? or - I may have misunderstood your answer - can I contribute the conversion taxes back to the Roth ? Thanks, Dan
You don't have to reduce the conversion. Let me try to explain again.
If you convert (let's say) $10,000 in December, you can make an estimated payment ($1500 or $2200 for most taxpayers) which is due no later than January 15. However, this will still trigger a penalty, unless you include penalty form 2210 with your tax return and use the "annualized income" method, schedule AI, to show the IRS that your payments were uneven because your income was uneven.
As an alternative, you can convert the $10,000 and ask for $2200 of withholding. That means that only $7800 goes into the new Roth IRA. But you then take $2200 from your bank account (that you already have ready to pay the tax) and deposit that money in the Roth IRA by telling them it is an indirect rollover. On your tax return, you don't report a $7800 conversion and a $2200 contribution, you report a $10,000 conversion. As long as you make the separate payment within 60 days, it counts as part of the conversion. And then, because the IRS "sees" withholding differently than payments, you won't have any need to include form 2210 with your tax return.
