@ronroberts wrote:
Thanks for clarifying! I must have been confused by your suggestion #2 above.
If the OP's investment house withholds $2200, sends him a check for $7800, and he then deposits $10,000, how is the $2200 a conversion/rollover? Where does the $2200 come from?
I am in a similar situation of likely needing to withdraw more from my tax deferred IRA this 4th quarter than I planned for in my first 3 estimated payments. The first 3 were for Roth conversions, but the next one will be for a new roof. Whether a conversion or just a withdraw, taxes will be owed in excess of what was planned in my earlier payments.
Will I avoid the hassle of form 2210 and Equalization of Income if my withdraw has taxes withheld? At the end of the year it will still look like my first 3 payments are less than 75% of total withdraws.
If my first 3 estimated tax payments plus money withheld from my future large 4th quarter withdraw exceed 90% of total tax due, does the IRS overlook the shortage on the 1st 3 payments?
On the question of withholding: withholding is always considered to be spread out over the year, even if it is not, the same as withdrawals. Suppose you withdraw $100,000 in December. The IRS just sees one 1099-R, so it assumes the withdrawal was spread out over the year, meaning the $25,000 tax you owe should be paid in 4 installments. If all the tax is paid in one installment at the end of the year, you are short for the first 3 installments unless you complete form 2201AI. However, withholding is also assumed to be spread out over the year, so if you withdraw $100,000 in December and have $25,000 withheld, the IRS assumes the money was withdrawn and the taxes paid in a timely manner, so you are not short in the earlier quarters.
On the question of completing the rollover, I would like to ask @dmertz to confirm.
One way to do the conversion with withholding, is to make the withdrawal in the form of an electronic debit or check to your bank account. You withdraw $10,000, have $2200 withheld, and receive $7800. Then, you send $10,000 to the new plan (by making up the difference from other funds). That's simple and easy, but you can only do that kind of rollover or conversion (where you get the money in between) once per year, and if you miss the deadline, you can get into more tax trouble.
Another way to do the rollover would be to make the withdrawal in the form of a direct transfer to the new bank, but with withholding, so you withdraw $10,000, have $2200 withheld, and have $7800 transferred to the new bank. Without more, that is a $7800 conversion, not a $10,000 conversion. My idea is that, if it is legal to do so, you tell the receiving bank "this is a $10,000 rollover, but $7800 is coming from my old plan and $2200 is coming directly from me." That way you get the benefit of a direct rollover, but you also get the benefit of rolling over the entire amount by making up the difference from other funds. @dmertz seemed to suggest this is acceptable, but the rollover is not "complete" until you send the makeup funds. But they didn't directly say this is allowable, so I'd like to double check.
In other words, it's just an alternative thought on how to rollover the entire amount but still have withholding to avoid the penalty, by adding your own make-up funds. Assuming it is allowable to do it that way.
