2025 Roth Conversion All in January - Pay Taxes Quarterly?

[memorris7]

May want to do a large Roth conversion (>$250,000) in January. Only other taxable income for the rest of 2025 will be <$3,000 of qualified dividends. Can I pay the Federal taxes - ~$45,000 over the 4 quarters (~$11,250/Qtr) without penalty? Not asking about the amount, only if I can divide the total, estimated tax of $45,000/4 and pay 1/4 - $11,250, on the quarterly dues dates of 4/15, 6/17, 9/16 & 1/15/26, rather than paying the entire $45,000 on 4/15?

Thanks!

[fanfare]

What is your 2024 tax ? do you have withholding taken in 2025?
If your total 2025 withholding alone is 100 % of that amount ( 110% if your 2024 AGI is over $150,000),

You don't need to make estimated tax payments. This is the prior year's tax rule.

If you got a 2024 refund this year and 2025 earnings are comparable then your 2025 withholding may already meet the prior year's tax rule

Unfortunately, this won't work for you since you say you will have no earnings in 2025 and therefore no withholding in 2025.

See Form 2210 Schedule AI for how much you will need to pay quarterly to avoid penalty.

@memorris7 

[memorris7]

Should have added that we are retired (on purpose to have no income so we can fill up the tax brackets with Roth Conversions). So no withholdings and we are paying the taxes from a taxable, non-retirement account and don't have taxes withheld from the conversions. Have always done the conversions at year-end (so entire tax bill paid 1/15 each year) but in 2025, it may make sense to do the entire conversion in January.

[VolvoGirl]

Also have you considered the affect on your Social Security if you are over 65?  If  your income is high you may have to pay extra IRMAA for the Medicare deduction.  

On my letter from Social Security for IRMAA it uses your AGI plus tax exempt interest on 1040 line 2a. See this,
https://secure.ssa.gov/poms.nsf/lnx/0601101010

The MAGI thresholds used for IRMAA calculations are:
Married, filing jointly
2024 $206,000
2025 $212,000

See The Finance Buff article on IRMAA brackets
https://thefinancebuff.com/medicare-irmaa-income-brackets.html#htoc-2026-irmaa-brackets

[memorris7]

Yes, took those into consideration many years ago when I came up with the plan to do this. We are paying some IRMAA now, but the NPV of that and paying taxes today at very low rates more than makes up for the incredibly high RMD taxes if we had not started Roth Conversions a number of years ago. Thank you, not everyone understands the IRMAA tax penalties! They can be rough, especially since they are a "cliff".

[fanfare]

IRMAA  stops when you stop converting Traditional to Roth.

It also stops when your entire retirement is funded by a Roth IRA, not a Traditional IRA

Tax on Social Security benefits also stops.

[fanfare]

"paying taxes today at very low rates more than makes up for ... "

You won't be paying a very low rate when converting $250,000.

@memorris7 

[memorris7]

Total Fed/State 22%, w/o Roth conversions 32-34% bracket

[Opus 17 · Accepted solution]

Answering your actual question, yes, you can spread out the estimated payments.

The IRS assumes that 1099-R income is earned spread out over the year, so they will want to see the payments spread out over the year.   When you make a conversion at the end of the year, this assumption hurts you because the IRS wants to see the taxes paid in all 4 quarters, not just at the end of the year.  But if you make the conversion in the beginning of the year, this assumption works in your favor. You can spread out the tax payments over all 4 quarters (and possibly invest the rest in the mean time) and not incur a penalty.

Of course, you may need to include estimated taxes for any other income, and I have not talked about tax brackets or IRMAA.   If you are married filing jointly, and you have no other income, you can convert about $100,000 and stay in the 12% bracket.  Converting more will push you into the 22% bracket.  You might want to spread the conversion out a bit.  

[memorris7]

Thanks to everyone for the great answers. We are converting at the $250k+ level to reduce the balance in our IRA's (for at least 10 yrs), the combined effective Fed/State tax rate is ~21% (yes some income is in the 24% bracket) and have factored in the IRMAA penalties . This is needed to reduce the RMD's, which when combined with SS (not taking until 70) would have put us at least in the 32-35% Fed with (with annual growth of 6-7%, but invested very aggressively so likely a higher growth rate) and if the TCJA expires at the end of 2025,  33-35%, plus ~6% state. So will keep my eye out in Q1 for a sharp market downturn for a large conversion, then pay the estimated taxes quarterly. This was very helpful and am sure it will be for others who are contemplating Roth conversions.