Quarterly estimated taxes on IRA conversions to Roth Ira

[Gm_00]

We retired in 2020 with myself starting S.S. this year. We decided to start converting some of our IRA funds to Roth to reduce our upcoming RMD's. We converted 50k in March of this year and plan to convert another 250k before next tax year. Not sure on timing..if stock market falls we may convert then otherwise could be January of 2022 before we convert. However, the first conversion did not have taxes withheld as we planed to pay taxes from a cash account. Can we just pay those taxes with a single form as we convert or do we have to plan ahead and do quarterly estimated taxes based on the anticipated yearly conversion? What forms are required for this action?

[Critter-3]

Taxes are paid in the same quarter the conversion happened... so you make one payment. 

[Gm_00]

Is there a specific form to use that ties this together as taxes paid on a Single IRA  conversion to Roth?

[Critter-3]

All the  taxes paid are combined on the form 1040 and are NOT specifically tied to a specific income item.

[fanfare]

Refer to the Instructions for Form 2210 for what you should do in the ES period you took the distribution.

If you can figure it out, my hat's off to you.

[Opus 17]

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@Gm_00 wrote:

Is there a specific form to use that ties this together as taxes paid on a Single IRA  conversion to Roth?

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Your taxes for the entire year are determined only on your 1040 when you file.  That's the final number.  However, if you have lump sum income during the year, you are required to make estimated payments in the same quarter as the income.  If you over-pay, you will get the excess back when you file your return.  The schedule of estimated payments is:

Income received	Estimate due (2021 dates)
January 1-March 31	May 17
April 1-May 31	June 17
June 1-August 31	Sept 15
Sept 1-Dec 31	Jan 15, 2022

You can pay at www.irs.gov/payments.  Select "estimated tax" and "2021" from the dropdown menus so the payment is applied to the correct tax year in your account. 

[chen123]

We did $60k Roth conversion in February, 2022, and plan to another conversion later this year. We are in 24% tax bracket. Do we have to pay estimated tax in full ($14400) in April 15, 2022. Or can we pay a quarterly estimated tax ($3600) without penalty? Any suggestion?

Thanks,

[RaifH]

If you have lump-sum income, you want your estimated tax payment to be in the same quarter as the income as @opus17 said above. The IRS addresses this by suggesting the annualized income installment method if the income is earned unevenly through the year. In your case, since the first conversion is occurring in the first quarter, I would include 24% of the conversion in your April 15, 2022 estimated tax payment. 

@chen123

[fanfare]

"Any suggestion?"

 Do a trial tax return with equal ES payments and see if any penalty pops up.

That's how I calculate my ES payments. when the penalty goes away, I know I'm good.

[sandy4042]

I concur with others who say you should pay the taxes owed in the quarter that you did the conversion.  I am doing my 2021 taxes on TurboTax and had done a substantial Roth conversion in Dec 2021.  I made an estimated tax payment by Jan 15th to cover it.  When you input your data for your estimated tax payments, the dates that you made the payments are needed, that way the Form 2210 program can account for if you paid on time.

The exception is the safe harbor rule.  If you make four equal quarterly tax payments that cover last year's tax liability (110% for high income), then you can pay the additional taxes for your Roth conversion when you file next year. 

[jfg1914]

I believe the advice is incorrect for a direct conversion.  This should be checked more thoroughly.

This is from another site:

“Your planned conversion (traditional to Roth) while set to occur early in the year, does not necessarily mean the resulting tax liability has to be paid at the same time,” she said. “Converting earlier in the year may allow you more time to pay the taxes, because, in general, taxes are due upon filing the tax return for the year in question.”

Your 2022 tax return is due April 15, 2023, so, potentially, you could delay paying the conversion tax in part or in whole until that time."

[ColeenD3]

Just because you read something somewhere online, that doesn't make it necessarily correct. There is a lot of misinformation out there. You have had a lot of qualified people all telling you to pay during the quarter you converted. I am reinforcing that. You can absolutely get an underpayment penalty for paying in a later quarter.

Your W-2 withholds taxes every paycheck which are transmitted to the IRS in a timely manner, not just any quarter you feel like it.

Having enough tax withheld or making quarterly estimated tax payments during the year can help you avoid problems at tax time.

Taxes are pay-as-you-go. This means that you need to pay most of your tax during the year, as you receive income, rather than paying at the end of the year.

There are two ways to pay tax:

•  Withholding from your pay, your pension or certain government payments, such as Social Security.
•  Making quarterly estimated tax payments during the year.

Estimated payments

@Gm_00

[sandy4042]

I'm glad you posted your affirmative reply about paying the taxes on a Roth conversion in the quarter it is done.  I saw the same quote/source when searching "When do I owe taxes on my Roth conversion?"  The person who gave the advice about it not being due until you file your taxes was a CPA with a financial investment firm, so I'm scratching my head about that.  Perhaps they were quoted out of contest.

They did refer to the safe harbor rule.  Do you find that valid for Roth conversions?  That is, for example, say you are doing one for the first time and your current withholding + any quarterly equable estimated tax payments cover your liability for the previous year's filing, could you pay the additional tax owed on the Roth conversion at filing time?

[ColeenD3]

Yes, the safe harbor rule applies.

There's a safe-harbor rule designed for people like you who experience an unusual bump in income: As long as you pay at least 100% of last year's tax bill (or 110% if your adjusted gross income is $150,000 or more), you'll avoid an underpayment penalty.

[krisraju]

Can you help me how I can use Form 2210, with similar info in my case.  I did the IRA to RothIRA conversion in December, 2021.  My over paid tax  from 2020 is sufficient for my earnings in 2021until  4th qtr.  Based on my IRA conversion, I owe taxes only in 4th qtr, and I paid estimated taxes.  However, TurboTax is not showing me to input that info and calculates my taxes with a penalty, which I don't need to pay.   Even a TurboTax customer serves personal could not help me yet.