quarterly tax payments have to equal?

[kaneohe]

Quote:

Originally Posted by Cobra9777 This is very interesting. I read the linked thread twice, but it's still not crystal clear how this works. Let's say I do a $25K tIRA withdrawal in late Dec 2020 with 100% withholding and then replace the $25K within 60 days from my taxable account... ~mid Feb 2021. Obviously my 1099-R for 2020 will show $25K of taxable tIRA distribution. How exactly does the mid-Feb 2021 "rollover" come into play on my 2020 tax return? Do I just manually adjust the IRA distribution amount? What am I missing?

The 1099-R , in principle, shows both the gross and taxable distribution. In practice, the box called "taxable amount not determined" should almost always be checked since the IRA custodian does not know what you did w/ the funds, how much basis you have, etc. even if they have a number for taxable amount. The gross amount is entered on the 1040. The taxable amount is entered as 0 w/ explanatory "Rollover" nearby to explain the difference.

[RunningBum]

Quote:

Originally Posted by OldShooter I would just replenish before the end of the tax year and avoid the potential hassle and ambiguity. Pay in November if you need extra time. You might want to talk to your IRA custodian and ask them how the 1099 would be handled. Or your CPA.

Agree. You don't have to wait the 60 days, that's just the max.

But as kaneohe explains in the next post, it's not that hard to handle. Some of us used to make higher Roth conversions, and then recharacterize when doing taxes the next calendar year to keep income out of a next tax bracket or over the ACA subsidy income limit. The recharacterization applied to the previous year, and just took a little bit of explaining in the tax forms. Of course Roth characterizations are no longer allowed.

[WWDog]

I just pay 100% of what I paid the previous year or 90% of what I owe for the current year plus a bit more. Safe Harbor I try to pay just a few $ over the last year. This year may be different since my taxable passive income will be less due to the drastic drop in interest earned income.


So paying at least 100% of the previous year's taxes has always kept me safe. What I do is try to even the quarters out by estimating my earnings and dividing by 4. That almost always ends up with the first quarter being under estimated. But I make up for it as soon as I can calculate the real value. But I always pay at least 100% of the previous years tax. Now if you earn significantly more than the previous year you need to start digging into the tax laws.

[gauss]

Quote:

Originally Posted by OldShooter That's very clever. It won't work for us because we no longer have any significant money outside of our tax-sheltered stuff, but I like it. If you pay back the IRA draw then to the tax man it never happened, but the money you pay back will, when you draw it, eventually pay that tax. How does the word "Roth" figure here? @pb4, are you here? Am I right on this?

The money is distributed from a Roth IRA to pay the tax bill via withholding and then within the 60 days, the money is repaid (ie rolled over) back to the Roth IRA. Traditional IRAs are not part of my strategy because I actually do my "Roth conversion" within a 401k plan with $0 tax withholding.

My strategy could be modified to do the Roth conversion via a traditional IRA (as opposed to the 401k). It would still be a separate standalone transaction from the tax withholding/rollover in the Roth to order to keep things relatively simple.

As a PSA, I should mention that you need to be very careful to observe the "one-rollover per 365 day rule". This transaction does, indeed, consume my one yearly rollover that is allowed by the IRS.

-gauss

[audreyh1]

Quote:

Originally Posted by WWDog I just pay 100% of what I paid the previous year or 90% of what I owe for the current year plus a bit more. Safe Harbor I try to pay just a few $ over the last year. This year may be different since my taxable passive income will be less due to the drastic drop in interest earned income. So paying at least 100% of the previous year's taxes has always kept me safe. What I do is try to even the quarters out by estimating my earnings and dividing by 4. That almost always ends up with the first quarter being under estimated. But I make up for it as soon as I can calculate the real value. But I always pay at least 100% of the previous years tax. Now if you earn significantly more than the previous year you need to start digging into the tax laws.

I can’t know what current income for the year is until the end of the year, so there is no way to determine what 90% of the taxes would be and pay in equal installments. My taxable income is highly variable.

If prior year income was high, I don’t want to assume current year income will be higher and pay 110% of prior year taxes in equal installments. I will end up overpaying, maybe way overpaying. My taxable income has been dropping year by year lately (by design).

Works great after a low income year though.

[OldShooter]

Quote:

Originally Posted by WWDog I just pay 100% of what I paid the previous year or 90% of what I owe for the current year plus a bit more. ... So paying at least 100% of the previous year's taxes has always kept me safe. ... But I always pay at least 100% of the previous years tax. Now if you earn significantly more than the previous year you need to start digging into the tax laws.

Nope. Paying 100% or 110% (higher incomes pay the 110%) puts you into the safe harbor. No need to estimate current year taxes and no tax laws to dig into.

And, as previously mentioned, if you can pay the safe harbor amount by withholding $$ from a tIRA withdrawal you can do it in December and not worry about making quarterly payments either.

[OldShooter]

Quote:

Originally Posted by audreyh1 ... If prior year income was high, I don’t want to assume current year income will be higher and pay 110% of prior year taxes in equal installments. I will end up overpaying, maybe way overpaying. ...

Yup, using the safe harbor provision risks overpaying, IOW giving our uncle an interest-free loan. For those of us who can use a safe harbor/December withholding strategy that loan is for only maybe three months but if you have to pay quarterly with real money then the loan period could be longer. Not something that I have to worry about, but definitely another YMMV situation.

[audreyh1]

Our taxable income is from investments and highly variable. I’ve had some years where I would have paid 2x the taxes if I had used the prior years taxes safe harbor, so I only use it if I’m pretty sure we have higher income compared to prior year. I don’t like getting a large refund - especially if I get caught up with someone submitting a fraudulent return in my name.

[Cobra9777]

Quote:

Originally Posted by gauss ...you need to be very careful to observe the "one-rollover per 365 day rule". This transaction does, indeed, consume my one yearly rollover that is allowed by the IRS...

Sorry for resurrecting an older thread. But I was inspired by the discussion here...

So I just did my first IRA withdrawal with 100% withholding, which is the safe harbor amount for 2020 based on 2019 actual tax. I'll replace the IRA withdrawal from savings within 60 days, so it's a non-taxable rollover. Result is: I get the safe-harbor amount in the form of withholding and still use taxable funds to pay tax, almost all of which results from a large Roth conversion.

I'd like to do this every year. But I'm concerned about the "one rollover per 12 months rule." So I've been researching this. I know that the clock starts ticking on the day of the original distribution, which is today 12/30/2020. So I guess I could do a similar transaction next year on 12/31/2021. But that's cutting it pretty close and doesn't leave any room for subsequent years.

I also know that I can't just use another one of my IRAs for the rollover because the IRS aggregates all your IRAs for most tax purposes.

But I started thinking, why not use my IRA this year, my wife's IRA next year, and so on. I would think we are each individually entitled to one non-taxable roll-over per year, even though we file a joint return. But I can't find anything authoritative on this question. Does anyone know?

Also just curious, for those of you who do this, how do you get around the "one rollover per year" rule? I suppose if I had done it much earlier in December that would give me plenty of time for subsequent years.

[samm]

Quote:

Originally Posted by RE2Boys See: https://www.irs.gov/taxtopics/tc306 for the particulars. All will be well and good as long as your total estimates and withholdings meet the required provisions. If they are insufficient, then you will be introduced to IRS Form 2210 and possibly Schedule AI. These forms are used to calculate the penalty for not timely paying your taxes through the year. Double check your estimates to be sure your payments are sufficient.

+1 Good info above.

My quarterly payments are not equal ...but the sum of quarterly payments equal the annuall target.

[SecondCor521]

Quote:

Originally Posted by Cobra9777 Sorry for resurrecting an older thread. But I was inspired by the discussion here... So I just did my first IRA withdrawal with 100% withholding, which is the safe harbor amount for 2020 based on 2019 actual tax. I'll replace the IRA withdrawal from savings within 60 days, so it's a non-taxable rollover. Result is: I get the safe-harbor amount in the form of withholding and still use taxable funds to pay tax, almost all of which results from a large Roth conversion. I'd like to do this every year. But I'm concerned about the "one rollover per 12 months rule." So I've been researching this. I know that the clock starts ticking on the day of the original distribution, which is today 12/30/2020. So I guess I could do a similar transaction next year on 12/31/2021. But that's cutting it pretty close and doesn't leave any room for subsequent years. I also know that I can't just use another one of my IRAs for the rollover because the IRS aggregates all your IRAs for most tax purposes. But I started thinking, why not use my IRA this year, my wife's IRA next year, and so on. I would think we are each individually entitled to one non-taxable roll-over per year, even though we file a joint return. But I can't find anything authoritative on this question. Does anyone know? Also just curious, for those of you who do this, how do you get around the "one rollover per year" rule? I suppose if I had done it much earlier in December that would give me plenty of time for subsequent years.

I think you generally have the correct understanding. See here for the authoritative answer:

https://www.irs.gov/retirement-plans...-per-year-rule

I don't handle things the way you do, so I don't need to worry about this rule. I use the safe harbor rule of owing less than $1000.

[Out-to-Lunch]

Quote:

Originally Posted by Cobra9777 But I started thinking, why not use my IRA this year, my wife's IRA next year, and so on. I would think we are each individually entitled to one non-taxable roll-over per year, even though we file a joint return. But I can't find anything authoritative on this question. Does anyone know?

I think you must be right. The IRS guidance on rollovers repeatedly refers to the IRA of "an individual": https://www.irs.gov/newsroom/irs-cla...-start-in-2015 Which makes a lot of sense, considering that is what the "I" in IRA stands for!

Edit: Sorry SecondCor for crossposting!

[FIREchief]

Quote:

Originally Posted by Koolau we've always just tried to "over pay" so we wouldn't get into trouble with IRS. Sounds like there's a way to keep them happy even if you end up paying a bit to them once taxes are figured (I like your term: Safe harbor.) Sometimes we get back a TON which is a ridiculous way to keep from "enraging" the IRS. Thanks.

While I've had many dealings with the IRS, I would never describe any as involving "trouble," "keeping them happy" or "enraging."

The IRS has a job to do and I've always found them to be very reasonable to deal with.

[Cobra9777]

Quote:

Originally Posted by SecondCor521 I think you generally have the correct understanding. See here for the authoritative answer: https://www.irs.gov/retirement-plans...-per-year-rule I don't handle things the way you do, so I don't need to worry about this rule. I use the safe harbor rule of owing less than $1000.

Quote:

Originally Posted by Out-to-Lunch I think you must be right. The IRS guidance on rollovers repeatedly refers to the IRA of "an individual": https://www.irs.gov/newsroom/irs-cla...-start-in-2015 Which makes a lot of sense, considering that is what the "I" in IRA stands for! ...

Thanks guys. I had read those pages at irs.gov. But I guess I was looking for something that more directly addressed the permissibility for a MFJ couple. But I guess this is pretty clear:

Quote:

The limit will apply by aggregating all of an individual’s IRAs, including SEP and SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit.

I've also found sites like Ed Slott's irahelp.com, where people had the same exact question and received consistent answers that... yes, a MFJ household can, in effect, do two rollovers per year as long as both spouses do the rollover within their own IRA(s).

So this should make it very easy for us going forward without worrying about the timing relative to the prior year's rollover.

[Koolau]

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Originally Posted by FIREchief While I've had many dealings with the IRS, I would never describe any as involving "trouble," "keeping them happy" or "enraging." The IRS has a job to do and I've always found them to be very reasonable to deal with.

Let just hope you keep it that way as YMMV.

[pb4uski]

Quote:

Originally Posted by Cobra9777 ....But I started thinking, why not use my IRA this year, my wife's IRA next year, and so on. I would think we are each individually entitled to one non-taxable roll-over per year, even though we file a joint return. But I can't find anything authoritative on this question. Does anyone know? Also just curious, for those of you who do this, how do you get around the "one rollover per year" rule? I suppose if I had done it much earlier in December that would give me plenty of time for subsequent years.

I think that would work for you... it will not work for me because we converted all of DW's IRA to a Roth long ago.

Another option would be to do yours on 12/31 in 2021, then hers in 2022. I would do the larger one earlier in December in 2023 so you can comfortably do multiple years in succession if you want to.