Paying taxes on IRA to Roth conversion when tax was not withheld

[Retired2022]

I just had my finance advisor transfer $200,000 from my IRA to my Roth.  He did not perform any tax withholding on the transaction and I did not pay any estimated tax for the year.  I retired at the end of last year and did not have any income until this IRA to Roth transfer.  Do I need to pay tax right away and how do I do that?

[NCperson · Accepted solution]

@Retired2022 - you can pay an estimated amount at the IRS website and then just show it as a payment when you do your tax return.  the next estimated payment due date is Jan. 15, 2023.  Consider State taxes if you live in a state that has income tax; it probably has a payment website as well.  

Also, if you are not careful, TT will think there is a penalty for underpayment of taxes.  if you work your way Form 2210 you can avoid it.  Your 2022 is 'lumpy' because of the Roth conversion and the form, if following correctly, will accomodate your situation. 

https://directpay.irs.gov/directpay/payment?execution=e1s1

this is an great calculator you can use to estimate your federal tax: 

https://www.dinkytown.net/java/1040-tax-calculator.html

[Retired2022]

Thanks a lot for this information.  I tried several times getting a hold of the IRS, but they just put you on hold for 30 minutes and then hang up on you.

[Opus 17]

Very brief summary, if you had a lump sum of income in the last quarter of 2022, an estimated payment is due January 15, 2023, unless you file your completed tax return and pay the tax by January 31. (This seems unlikely, since you probably won’t get the 1099 form from the broker before then.)

The minimum estimate you must make in your situation is an amount equal to your tax liability for last year, or your actual tax liability for this year, whichever is less.  If you overpay your estimate, you will get the difference back as a refund. If you underpay the estimate by more than $1000, the IRS will probably assess a penalty.

You can make your payment at www.irs.gov/payments, be sure to select 2022 estimated taxes from the reason menu.

[NCperson]

@Retired2022 curious - what information are you trying to get from the IRS.  most probably these boards can answer the question....

[Retired2022]

Thank you so much.  This helps lead me in the right direction!

[Retired2022]

Yes, I didn't think of using this board to get my answers.  I was going to ask them how to pay the tax for this current roth conversion transaction, since the tax wasn't withheld.  I was also going to ask what the proper way to pay in the coming years was.  Should I catch it in estimated taxes, or just have it withheld with the transaction.  For the next few years, I don't plan on any income except for a similiar roth conversion  of $200,000 and then some dividend/capital gains.

Thanks!

[NCperson]

@Retired2022 - as noted above, for me, the best way to estimate the tax liability is this website.  it is very accurate 

https://www.dinkytown.net/java/1040-tax-calculator.html

also, as noted above, you can pay the tax at this website: 

https://directpay.irs.gov/directpay/payment?execution=e1s1

whether paying the tax via estimates or having it withheld as part of the transactions, check with your financial advisor.  Most will suggest paying the tax (if you have the flexibility) out of other non qualified funds and not netting it out of the transaction.  You want to maximize the amount of money that makes its way to the Roth so that it continues to grow tax free and if you net it out of the transaction when other assets exist to pay the tax, it sub-optimises the strategy to grow the Roth.  Your choice and talk to your financial advisor.