EOY Roth conversion and estimated taxes

[youbet]

Quote:

Originally Posted by RunningBum I think you're fine with making even quarterly payments. Where 2210 comes in handy is if you decide in December that you want to convert a lot more, or otherwise have more income, and thus taxes to pay. 2210 would let you correlate 4Q income with your estimated 4Q tax payment. Withdrawing extra from your IRA and specifying 99% or 100% holding frees you from form 2210, but it's not the most tax efficient way to do Roth conversions, plus it takes up more space in how much you can convert to the ACA subsidy cliff, or the top of the desired tax bracket. For those reasons, I'll always pay Roth conversion taxes out of my taxable account, and deal with using form 2210 if I need to.

Thanks for those comments RB.

At my age, I'm way past ACA income issues. But, I am trying to make sure my Roth Conversion doesn't impact IRMAA, a very similar situation.

If I had thought of substituting a Roth conversion for my RMD earlier in the year, I would have just increased all 4 estimated tax payments. Since the light in my noggin just clicked on recently, it looks like it's either pay the tax out of the TIRA as withholding (simple but increases my income by the amount of the tax) or send in more estimated tax money and use Form 2210 (which I've heard of but never used).

[pb4uski]

Quote:

Originally Posted by cathy63 The way to do this is: 1) convert the full $30K amount in Q4 2) by January 15, use eftps, direct pay or send a check to the IRS to cover the $5K tax from your after tax accounts. 3) when you file your 2020 tax return, include form 2210 to show that you don't owe an underpayment penalty. You will fill out the last page (schedule AI) which will show the tax due for the first 3 quarters was $0 and all your tax for the year was due in Q4 and paid in the Q4 installment.

+1 Exactly what I was going to suggest. You saved me a lot of typing.

[Dtail]

Quote:

Originally Posted by RetireBy90 I wasn't sure if your question was answered, no need to do withholding from the Roth conversion. You can make an estimated Q4 payment by 15 Jan 2021 from after tax monies. There may be another form to fill out to show you incurred taxable income in Q4 when you file 2020 taxes but you can show the taxable income in Q4 and pay the tax as estimated payment on next due date (15 Jan).

Quote:

Originally Posted by cathy63 The way to do this is: 1) convert the full $30K amount in Q4 2) by January 15, use eftps, direct pay or send a check to the IRS to cover the $5K tax from your after tax accounts. 3) when you file your 2020 tax return, include form 2210 to show that you don't owe an underpayment penalty. You will fill out the last page (schedule AI) which will show the tax due for the first 3 quarters was $0 and all your tax for the year was due in Q4 and paid in the Q4 installment.

Sorry for the lack of response. Was playing Pickleball. lol
The above 2 responses were effectively what I was looking for. Thank you so much. I still have to read the rest of the responses.

[Dash man]

DW and I just took a long hard look at our tax situation and have decided to convert a large sum from her 401k to a Roth. It will hurt tax wise, but looking at our future tax possibilities, it may be best to start biting the bullet each year. It involves pushing us into the 32% bracket. When we’re on Social Security and eventually RMDs kick in at 72, it’ll probably be worse. Paying that tax bill is going to be painful!

[pb4uski]

Quote:

Originally Posted by Dash man DW and I just took a long hard look at our tax situation and have decided to convert a large sum from her 401k to a Roth. It will hurt tax wise, but looking at our future tax possibilities, it may be best to start biting the bullet each year. It involves pushing us into the 32% bracket. When we’re on Social Security and eventually RMDs kick in at 72, it’ll probably be worse. Paying that tax bill is going to be painful!

Congratulations. Obviously, you deferred that income anticipating that you would be in a lower tax bracket in retirement than you were while working, but it sounds like you have ended up much more financially successful than you thought you would be when you deferred that income... so congratulations!

[Dash man]

Quote:

Originally Posted by pb4uski Congratulations. Obviously, you deferred that income anticipating that you would be in a lower tax bracket in retirement than you were while working, but it sounds like you have ended up much more financially successful than you thought you would be when you deferred that income... so congratulations!

Yes, it is a good problem to have!

[DustyMom]

Resurrecting this thread because I anticipate more-or-less the same situation as the OP, but I'm still a little unsure of the estimated taxes (never paid this way before) and want to make sure I get this right. Please tell me if I'm understanding this correctly. True or false:

1. If I make quarterly estimated tax payments, it doesn't matter when I pull the trigger on the Roth conversion. Could be June. Could be December (or any other month).
2. I don't actually have to file any paperwork unless I am using the vouchers to pay by check. The calculation is only for my records.
3. Makes no difference whether I pay by DirectPay or EFTPS.

Do I have this right? My goal is simplicity over precision.

Many thanks!
DustyMom

[RunningBum]

@DustyMom, look up "safe harbor" and make sure you comply with that for #1. Otherwise I think you are ok.

[SecondCor521]

Quote:

Originally Posted by DustyMom Resurrecting this thread because I anticipate more-or-less the same situation as the OP, but I'm still a little unsure of the estimated taxes (never paid this way before) and want to make sure I get this right. Please tell me if I'm understanding this correctly. True or false: 1. If I make quarterly estimated tax payments, it doesn't matter when I pull the trigger on the Roth conversion. Could be June. Could be December (or any other month). 2. I don't actually have to file any paperwork unless I am using the vouchers to pay by check. The calculation is only for my records. 3. Makes no difference whether I pay by DirectPay or EFTPS. Do I have this right? My goal is simplicity over precision. Many thanks! DustyMom

1. If you meet the safe harbor, then correct, it does not matter. If you do not meet the safe harbor, then the exact amount of your underpayment penalty (if any) may be affected by when you do the Roth conversion relative to when you make your estimated payments and their sizes.

2. Correct. Just keep appropriate records of your payments so that you can properly prepare your tax return for that year, and in case the IRS audits that return.

3. Not 100% sure, but yeah, fairly certain that it doesn't matter as long as the money makes it to the US Treasury. You can even mail in paper checks if you want to.