If I do a conversion from IRA to Roth why am I assessed a penalty when the taxable amount on the conversion is not due until April, not when the conversion occurred ?

[jerry-donais-gma]

Why, If I convert $25000 in January from an iRA to a Roth, in the turbo tax program I am assessed a penalty for not paying taxes throughout the year when taxes are not due on a conversion until the filing. how can the turbo ta program be corrected.

[VolvoGirl · Accepted solution]

Sorry the IRS wants you to pay in evenly during the year by withholding or estimated payments.

If you do not pay enough tax, you may have to pay a penalty for underpayment of estimated tax. Even if you are getting a refund you can still owe a penalty for not paying in evenly during the year.  Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller. It is included in your tax due or reduces your refund.

You might be able to eliminate it or at least reduce it.  You can go to Federal Taxes tab or Personal tab, under Other Tax Situations and select Start by the Underpayment Penalties. You will answer a series of questions that may reduce or eliminate the penalty. Or you can elect to have the IRS figure the penalty for you.  It's form 2210.

It's under

Federal or Personal (for Home & Business Desktop)

Other Tax Situations

Additional Tax Payments

Underpayment Penalties - Click the Start or update button

[dmertz]

As VolvoGirl said, the US tax system is generally pay as you go, but there are several safe harbors.  If the distribution was in January 2023, you did not have sufficient taxes withheld or make an estimated tax payment by April 18, 2023 and you do not qualify for one of the safe harbors, annualizing income on Schedule AI of Form 2210 is likely to increase the penalty rather than decrease it.  Annualizing helps when income is greater later in the year, not earlier in the year.

[Opus 17]

"when the taxable amount on the conversion is not due until April,"

Nope, sorry.  All income taxes are pay-as-you-go.  The IRS assumes that your income is spread out over the entire year and expects your payments (withholding or estimate payments) will also be evenly spread out through the year.  If you made a conversion in January, you would owe a single estimated tax payment on April 15, or you could divide it into 4 equal payments to be made before April 15, June 15, Sept, 15 and January 15.  Failing to make those payments can subject you to an underpayment penalty even if you pay in full when you file.

To minimize the amount of penalty and interest, you can make an estimated payment now at www.irs.gov/payments.  That will result in less compounding of the interest and penalty.

Also, if Turbotax allows, you can decline the option to include a pay a penalty, and wait for the IRS to send you a notice and a bill.  At that point, you can request an abatement for cause, or as a first-time forgiveness if you never owed a penalty before.  It's harder to ask for the waiver if you already included a payment with your tax return. 

[dc4444]

I did a Roth conversion in December 2023 and made the estimated tax payment by Jan 15 2024.

Will I have to file Form 2210 to avoid a penalty as the IRS does not know when I did the Roth conversion?

I used TurboTax 2023 - home and business and entered the 1099-R I received. I entered the estimated payment I had made. I did NOT get any notice from Turbo that there may be a penalty.

I selected 'Underpayment penalties' under 'Other Tax situations' to see if there is a penalty related to my Roth conversion. I got:

       "Based on your entries you don't have a penalty for underpayment of estimated taxes."

Do I still need to fill out Form 2210 and include with my return? If so, how?

I am using the desktop version of TurboTax 2023 - home and business.

[jtax]

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@dc4444 wrote:

I did a Roth conversion in December 2023 and made the estimated tax payment by Jan 15 2024.

Will I have to file Form 2210 to avoid a penalty as the IRS does not know when I did the Roth conversion?

I used TurboTax 2023 - home and business and entered the 1099-R I received. I entered the estimated payment I had made. I did NOT get any notice from Turbo that there may be a penalty.

I selected 'Underpayment penalties' under 'Other Tax situations' to see if there is a penalty related to my Roth conversion. I got:

       "Based on your entries you don't have a penalty for underpayment of estimated taxes."

Do I still need to fill out Form 2210 and include with my return? If so, how?

I am using the desktop version of TurboTax 2023 - home and business.

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It sounds like you do not need to fill out Form 2210. TT has figured that out and told you so. As described above there is a "safe harbor" rule that might apply to you (can't tell as we don't have your return or enough info). If you meet the safe harbor rule (basically have paid more in withholding/estimates than you owed the prior year) you could owe a million dollars on 4/15 and not owe a penalty. 

[dc4444]

Ok...I don't normally pay estimated taxes at all. I do not own a business. In the past, just a W-2 type of guy.