Year End Roth Conversion

[vasto7]

I made a small year end Roth conversion (Direct distribution from my 401k to a Roth IRA in December 2024).  No tax was withheld.  I did a mock tax return for 2024 and determined that through payroll and pension deductions I have overpaid my federal taxes, including consideration of the Roth Conversion.  Would Uncle Sam still expect an estimated tax payment on the conversion before the end of the year.

[Bsch4477]

No. Sounds like you’re good. 

[vasto7]

Thanks for the reply.  I am also planning on doing a Roth conversion in January of next year.  Is it acceptable to pay the tax on the conversion from withholdings from a monthly pension spread over the entire year rather than doing estimated quarterly payments?  If done by quarterly estimated payments, can the tax bill be spread over all quarters from the conversion or must the entire tax bill be paid in the quarter of the conversion.  Are the rules for withholdings different, i.e., can the taxes from withholdings for the conversion could be left to later in the year, even if the conversion was made a the beginning?

[dmertz]

"Is it acceptable to pay the tax on the conversion from withholdings from a monthly pension spread over the entire year rather than doing estimated quarterly payments?"

Yes.   By default, both income and withholding are treated as having been received and paid evenly throughout the year.  The source of the tax withholding is irrelevant.

"If done by quarterly estimated payments, can the tax bill be spread over all quarters from the conversion or must the entire tax bill be paid in the quarter of the conversion."

Because income, by default, is treated as received evenly throughout the year, estimated taxes can be split into equal payments for each of the tax quarters.

Withholding, by default is treated as paid evenly throughout the year no matter when it is actually paid while estimated tax payments are treated as paid when actually paid.

[Opus 17]

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@vasto7 wrote:

Thanks for the reply.  I am also planning on doing a Roth conversion in January of next year.  

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Income is assumed to happen spread out over the whole year.  The IRS wants payments to be spread out the whole year as well.  That means that for a conversion done in January, it is permissible to pay 1/4 of the estimated taxes on the IRS's quarterly schedule (April 15, June 15, Sept 15, and Jan 15, 2026) and you would be considered to have made timely payments, and not be subject to a penalty.  IF you have all the money on hand, you can invest 3/4s of it in the mean time and earn a little extra.

And of course, you could have withholding, which also is treated as being spread out over the year so you won't be assessed a penalty, but you would pay over all the money up front.