Estimated Taxes / 4th Q Roth Conversions / Penalties

[Steverino78]

Hello - On 12/31/24 I converted over 100k of Trad IRA to Roth with the goal of filling my 22% bracket.  I had previously ran the mock-up of my expected 2024 return through Turbotax Business software, providing confidence in the amount of funds converted.  Upon entering the taxable Roth conversion amounts (as if I had the forthcoming 1099R in hand because I know what I converted), the Turbotax software recognized I had not submitted quarterly tax payments, subsequently assessing a substantial IRS penalty. 

I've learned the IRS does not have documents revealing the Quarter in which I made the conversion.  The IRS (and Turbotax) apparently divides the single 12/31/24 conversion equally into the four quarters, effectively inducing 8% penalty costs from 4/15/24 onwards - a substantial amount of penalty expense.  I'm currently on the path of reworking Form 2210 to demonstrate the taxes as being paid at the time of the conversion (by 01/15/25). 

Yet I get this feeling the IRS expects the taxpayer to schedule their conversions a year in advance, and in turn, expect taxpayers to divide this yearly conversion amount quarterly - even if the conversion is performed on 12/31.  (?) 

Should I send in my 1040ES payment in full by 01/15 with the intent of providing the 2210 request for penalty waiver with my April 15 Return?  Roth conversions are common.  Seems odd that there is no means of differentiating between lax estimated income tax payments and retirement tax planning via roth conversions.  Thanks for any feedback.  

[Opus 17 · Accepted solution]

Correct.  Make the full estimated payment by January 15.  Then, when you file your tax return, include form 2210 schedule AI, which is the "annualized income" method for calculating the penalty.  The annualized income method shows the IRS that your income was not evenly distributed over the year, but that your payments plus withholding for each quarter were appropriate for your income in that quarter. 

[Vic M]

You need to use form 2210 to get it done using Turbotax,  but you don't have to pay in full before Jan15 according to the IRS:

The Underpayment of Estimated Tax by Individuals Penalty
You may avoid the Underpayment of Estimated Tax by Individuals Penalty if:
Your filed tax return shows you owe less than $1,000 or
You paid at least 90% of the tax shown on the return for the taxable year or
100% of the tax shown on the return for the prior year (5K for me), whichever amount is less.
To avoid a penalty, pay your correct estimated taxes on time. Find how to figure and pay estimated t...
https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes