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Taxable Income from in plan Roth conversion

i received taxable income for an in plan roth conversion (from 401k to Roth) done in April 2024 from plan administrator. My questions are;

 

1) When should the taxes on the roth conversion taxable income be paid by without penalties ?. Is it to be paid in 2024 itself or after i receive 1099-R in early 2025 and before April 2025 ?. 

 

2) If the taxes have to be paid in 2024, is there a way to calculate 2024 estimated taxes in Turbotax ?. By what date should the estimated taxes be paid by in 2024?.

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7 Replies

Taxable Income from in plan Roth conversion

By default, the IRS assumes that income is earned equally over the year, so they want to see taxes paid over the year.  So by default, they would want to see 1/4 paid on or before April 15, 1/4 on or before June 15, 1/4 on or before Sept 15, and 1/4 on or before January 15, 2025.

 

If you use the alternative method of calculating payment due dates, where you look at your income quarter by quarter, the taxes for a lump sum of income paid in April would be due June 15.

 

You can use the TaxCaster to estimate your tax due, or the tax calculator at the IRS web site.

TaxCaster tax calculator

https://www.irs.gov/individuals/tax-withholding-estimator

 

Regardless of when you pay, as long as you pay enough that you owe less than $1000 when you file your tax return, you shouldn't be assigned a penalty.  If you want to string the IRS out and keep your money a little while longer, I would pay 1/4 as soon as possible and the rest on the quarterly schedule.  Just don't accidentally spend the money and not have enough to pay when payments are due. 

Taxable Income from in plan Roth conversion

Thanks!. That link to IRS website takes me to tax withholding calculator. Is that the same as Estimated tax calculator, since I am assuming that I have to pay estimates taxes each quarter rather than with holding ?.  

DawnC
Expert Alumni

Taxable Income from in plan Roth conversion

The IRS tool linked is used to update your w-4 if you have an employer.   You can include the amounts of your other income along with your job earnings to generate a new w-4 which will tell your employer to withhold enough taxes to cover your w-2 income + the additional income you enter on the screen.     See Pub 505 for info on estimated tax and withholding tax payments.  

 

If you don't have an employer and want to generate federal estimated payment amounts, you can do that in TurboTax.  

 

Estimate next year's federal taxes

 

Estimate next year's state taxes

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Taxable Income from in plan Roth conversion

Thanks!!

Taxable Income from in plan Roth conversion


@Tax_payer03 wrote:

Thanks!. That link to IRS website takes me to tax withholding calculator. Is that the same as Estimated tax calculator, since I am assuming that I have to pay estimates taxes each quarter rather than with holding ?.  


I believe that if you use that calculator and include your conversion income, the calculator will tell you "with your current withholding, you will be $XXX short."  It will give you recommendations to change your W-2 (which will work perfectly fine), but you would also have the option of leaving your withholding alone, and paying the $XXX amount in 4 equal installments (now, June 15, Sept 15, and Jan 15.)

Taxable Income from in plan Roth conversion

I am following this subject and also encountering the same issue. My question is what is the process to pay the quarterly tax and how is it reported. Do I inform TT now or is there some documentation I should be keeping for my records?

Taxable Income from in plan Roth conversion

Here are the blank Estimates and instructions (the actual 1040ES forms are at the very bottom so scroll way down)

http://www.irs.gov/pub/irs-pdf/f1040es.pdf

 

You can pay directly on the IRS website https://www.irs.gov/payments

Be sure to pick the right kind of payment and year.....2024 Estimate

 

Then on your tax return next year you manually enter the dates and amounts you paid to get credit for them.

 

You must make quarterly estimated tax payments for the current tax year if both of the following apply:

- 1. You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits.

 

- 2. You expect your withholding and credits to be less than the smaller of:

    90% of the tax to be shown on your current year’s tax return, or

  100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months).

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