Tax question - late year IRA withdrawal and under withholding penalty

[kaneohe]

My situation may be a little different and I may have understood FIDO rep incorrectly but since I am under 59.5, if I use the withdrawal to pay taxes, I am subject to the 10% penalty on the taxes paid. I need to pay taxes with cash on hand. Is this correct?

correct.........I was going to mention it earlier but OP is receiving SS so over the age threshold.

 

[CRLLS]

Assuming one is in the 12% marginal tax bracket, only that 12% actually withdrawn for taxes has a 10% penalty. This means an extra 1.2% or 13.2% of the total amount withdrawn goes to taxes and 86.8%) goes to the Roth. Not 12% +10% (22%) of the total amount withdrawn and converted.

 

[SevenUp]

Assuming that one had a significant amount of cash or cash equivalents to pay the taxes, have enough to do so over then next "n" years worth of conversions, and if they are using the cash bucket strategy, do not dip into that bucket to pay the taxes. Those are a fair amount of if's to consider beyond a simple statement of "better" IMO.

Not everyone is in that camp. I am not. I have read on this site that others are similarly situated. Most of our retirement savings are in IRAs or 401K's. Personally, I am currently trying to maximize my IRA withdrawals to minimize eventual RMDs. These RMDs will push me into the next tax bracket. The more I can get out now while keeping in my current tax bracket, the lower those taxes will be. Possibly keeping me free from increased Medicare premiums (IRRMA).

I hope this makes sense to you.

If one does not have cash on hand with which to pay taxes, then it can't be done - despite it being better if it could be done.


Regardless of the amount withdrawn from a traditional account and convertible to a Roth account, it is better if one has enough cash on hand to pay the tax from that cash on hand and thus maximize the amount going into the Roth.


At least (tax loss harvesting excepted) there don't seem to be any counterexamples. Without counterexamples, not sure why this is controversial...?