Roth Conversion - when to pay tax

[mayflower1000]

Hi there,

I'm thinking of converting my IRA to Roth IRA, and have the following questions:

1. Will the entire amount converted to the Roth IRA subject to my regular (higher) Income Tax rate, OR, any gains/earnings will subject to the Capital Gain (lower) Tax Rate? 

2. When do I have to pay the tax (not the tax withholding)?  Do I need to pay Estimated Tax in the quarter that I did the Roth Conversion, OR, I can wait until the following filing deadline (i.e. 4/15/2023 if do the conversion now) to pay the tax?

Thanks for your information!

[FangxiaL]

The amount you choose to convert will be taxed as ordinary income, with no capital gain treatment on earnings. This additional income might push you to an even higher tax rate. The total taxable amount is affected by whether the underlying contributions to the IRA were deductible when you made the contribution. Deductible contributions are any gains on them are taxed at their full current value. So if your Traditional IRA has only deductible contributions, you will pay tax on the full amount. Nondeductible contributions have a nontaxable portion, which you'll calculate using cost basis on IRS Form 8606.

The IRS will collect the federal tax on a Roth IRA conversion when you file your tax return in 2023. You don't need to pay the estimated tax.

[Stickman4]

Hmm... If I convert in December of 2023, I wouldn't be socked with a penalty for underpayment of tax if that issue comes into play when I do my taxes in early 2024??

[dmertz]

Your 4th quarter estimated taxes (covering income earned in September through December) are generally due by January 15.  However, the payment won't be considered late if you file your tax return by January 31 and include payment for the balance due.