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Estimated tax payment after Roth conversion in 1st quarter, 2025

Hello,

Our joint filing tax bracket is 24%. We did Roth conversion ($100000) earlier this year. Paid 24% ($24000) estimated tax before 4/15 deadline. We are planning to do more conversion (maybe about $40k) later this year. Then pay another 24% estimated tax for that amount before 1/15/2026 deadline.  We do not quite understand the safe harbor rule. Should we pay some taxes in 2nd/3rd Quarter to avoid penalties? How much should we pay to avoid penalties?

 

Thanks,

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2 Replies
JotikaT2
Employee Tax Expert

Estimated tax payment after Roth conversion in 1st quarter, 2025

It depends.  The safe harbor rule is essentially calculated based upon your prior year tax as compared to your current year expected tax liability.  

 

Typically, if you pay in (via estimated tax payments or withholdings) at least 90% of your current year tax or 100% of your prior year tax, you should not face any sort of underpayment penalties.  If you expect your adjusted gross income to be over $150,000, then the threshold of prior year tax goes up to 110% instead of 100%.  Your payments each quarter should be spread equally as it is assumed your income is earned equally over the year.  There is an option to annualize your income if you expect your income to go up just in the last quarter of the year.  

 

Please see how to avoid penalties for underpayment of taxes for a more detailed explanation as well to assist.

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Estimated tax payment after Roth conversion in 1st quarter, 2025

Sounds like you already paid a lot of Q1 ES that could have been spread out over the year, depending on your overall situation and 2024 tax.

 

To avoid penalty you need to pay thru the year either via withholding or "timely" (usually quarterly) estimated tax, the smaller of 100% of your 2024 tax (110% if AGI > 150k or 75k if MFS), or 90% of your 2025 tax - that's your safe harbor amount.  See lines 1-9 on Form 2210 for the calculation.

 

If you have large income event early in 2025 you may be better off paying estimated tax based on 2024 tax which would be a fixed amount each quarter and in this case it doesn't matter how much income you make in 2025 or when, you pay the 4 quarters ES based on prior year and the rest is due in April 2026.  If your income/tax is steady or decreasing then the prior year method is usually an overpayment, but it is also the simplest to calculate as you don't need to estimate 2025 (other than withholding if that applies).

 

If you filed 2024 in TT, by default it would have generated ES vouchers based on prior year and assuming your 2025 withholding is same as 2024.  Under Other Tax Situations / Form W4 and Estimated Taxes you can also provide 2025 income information for the safe harbor calculation.  There may be other tools under TT online also but I am not as familiar (Taxcaster).  Either way you don't have to use TT tools if you have a better estimate.

 

Back to your case, it looks like you already paid a significant amount of ES in Q1 to cover the likely entire tax due to the first Roth conversion which maybe could have been deferred to future quarters and may mean you don't need to pay much more ES depending how much is due in total and whether you are in balance by quarter.

 

Let's assume for example you only paid $20k tax last year then when you go thru the safe harbor calc and it's clear that paying ES based on 2024 tax is the best for you, and assume you don't have any withholding.  Then you need to pay ES for $5k per quarter.  If you paid $24k in Q1 that's actually an overpayment in Q1, all that was due in this case was $5k.  That overpayment will also carry forward to the future quarters and in this case you will always be overpaid so no further ES should be needed (overpaid $19k in Q1, overpaid $14k in Q2, overpaid 9k in Q3, overpaid $4k in Q4).  That's just for example - once you figure what method you need to use and the total ES due, you can figure out what to do and feel free to post further here if you have more specifics or questions.

 

The other way to pay ES is aligned with the date of the income and file Form 2210 using the Annualized Income method where you provide income/withholding etc more precisely by quarter by 3/31, 5/31, 8/31, 12/31, and show how these line up with one-off ES payments.  This is particularly useful if you have a large income event in Q4 and couldn't plan the estimated tax per quarter and need to make a large ES payment in Q4.  Without Form 2210 AI schedule the IRS will assume your total income was earned evenly thru the year (and withholding is assumed to withheld evenly also by default), and hence your single ES payment in Q4 was late as you owed a portion of it in Q1,2,3 even if you met the total by Q4.  If you hadn't done the first Roth conversion and ES payment and was planning to just do one later in the year then this method may be helpful to show the estimated tax on that paid in Q4 by 1/15/26 was related to a Q4 Roth conversion.  But it doesn't help much if you do a Roth conversion earlier in the year, because then you are better off not paying a lump sum of estimated tax in Q1, and instead spreading it out by quarter.

 

So that's a lot to unpack, but first figure out whether your safe harbor amount should be based on prior year or current year tax and how much ES is due in total based on that, and that will help you plan out what further ES payments are due and when (if any).


Not a CPA - just my thoughts based on what you've described, hope this helps.

 

More info on Estimated Tax - https://www.irs.gov/faqs/estimated-tax

 

Form 2210 instructions - https://www.irs.gov/pub/irs-pdf/i2210.pdf

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