When am I Required to Pay Taxes on 401k Withdrawals Converting to Roth

[SCRTP]

In early 2025, I'm planning to withdraw $50,000 from my 401k and convert it to my Roth.  I'd like to pay the estimated tax on the conversion with cash.  When am I required to pay this tax?  Can I pay the tax later in 2025 or early 2026 before the tax season ends or do I need to pay it during the quarter in which I converted it?

[SwapnaM · Accepted solution]

Yes, ideally you should pay taxes in the quarter that you made the income. When you convert funds from a 401(k) to a Roth IRA, the amount converted is considered taxable income for the year in which the conversion occurs.

1. Quarterly Estimated Taxes: If the conversion significantly increases your taxable income, you may need to make estimated tax payments to avoid underpayment penalties. These payments are typically due quarterly, with deadlines on April 15, June 15, September 15, and January 15 of the following year.
2. Year-End Payment: You can pay the tax on the conversion by the tax filing deadline, which is usually April 15 of the following year. However, if you wait until the end of the year or early the next year to pay, you might incur underpayment penalties if you haven’t made sufficient estimated tax payments throughout the year.
3. Safe Harbor Rule: To avoid penalties, you can use the IRS safe harbor rule. This means paying at least 90% of the current year’s tax liability or 100% of the previous year’s tax liability (110% if your adjusted gross income is over $150,000) through withholding and estimated tax payments.

Given these points, it’s generally advisable to make estimated tax payments during the quarter in which you convert the funds to avoid any penalties. You can also ask the custodian to withhold enough taxes when the conversion is done.

@SCRTP Thanks for the question!!