Penalty for not making estimated tax payments following Roth conversion?

Forum|Forum|5 years ago
November 28, 2020
3 replies
21 views

If someone in November 2020 realizes $100,000 in additional 2020 income through converting that sum from a traditional IRA into a Roth IRA, besides the tax consequences or a higher marginal tax rate for 2020, is that taxpayer also liable for any penalties for not having made quarterly tax payments in 2020, or can a full payment of the estimated new tax payment on that $100,000 by January 15, 2021 avoid any tax penalty? If so, what mechanism can be used to make that estimated new tax payment on that $100,000 by January 15, 2021?

Bsch4477

Level 15

Just send the payment with your voucher which you can get here:

https://www.irs.gov/pub/irs-pdf/f1040es.pdf

Don’t forget your state income tax if your state has one.

Simon888

Level 2

Use 2019 software, add $100,000 on 1099R find out the tax. Should be no penalty, because you make money on November and you pay estimate tax before 12/31/2020 and get state tax credit on IRS

macuser_22

Alumni - Champ

@tmisurek wrote:

If someone in November 2020 realizes $100,000 in additional 2020 income through converting that sum from a traditional IRA into a Roth IRA, besides the tax consequences or a higher marginal tax rate for 2020, is that taxpayer also liable for any penalties for not having made quarterly tax payments in 2020, or can a full payment of the estimated new tax payment on that $100,000 by January 15, 2021 avoid any tax penalty? If so, what mechanism can be used to make that estimated new tax payment on that $100,000 by January 15, 2021?

Yes you can make a one time estimated tax payment in the quarter that a lump sum income was made. You can pay the estimated tax with a 1040ES form or online - see https://www.irs.gov/payments/pay-as-you-go-so-you-wont-owe-a-guide-to-withholding-estimated-taxes-and-ways-to-avoid-the-estimated-tax-penalty.

When you file you include the estimated tax paid on a form 2210 to show that you had unequal income during the year and paid the tax on that income. That will remove any penalty for unequal tax payments since the income was a lump sum.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**