Making quarterly tax payments to the IRS?

[sakowitzm]

Just another vote for eftps. Couldn't be simpler; works like a charm.

 

[RetireBy90]

Something else I recently learned on this forum is to return the withdrawal to the IRA within 60 days as a rollover. So the IRA withdrawal is not taxable, but the withholding stays. And I ultimately use taxable funds to pay tax, which is my preference since almost all of our tax liability is driven by large Roth conversions.

So please bear with my lack of math skills, how is this different than just paying the tax directly from your taxable funds ? Except for it being a withholding and allowing you to escape penalties and interest for a late payment I don't see the difference.

 

[cathy63]

So please bear with my lack of math skills, how is this different than just paying the tax directly from your taxable funds ? Except for it being a withholding and allowing you to escape penalties and interest for a late payment I don't see the difference.

Escaping penalties and interest is exactly the reason to do it this way. Say you receive cap gains and dividends in your taxable accounts throughout the year, but you don't bother to pay any estimated taxes. In December, you can do a Roth Conversion from your Traditional IRA and have all the tax owed for the year withheld from that money. The IRS treats withholding as if it were spread evenly across the year, even if it wasn't; so you won't owe any penalties for not having paid estimated taxes earlier.

If you replace the withheld amount from your taxable account then you get the benefits of doing the full Roth conversion and you also get the benefits of holding on to the tax you owe the government until the last minute. For most people, the benefit of waiting until December to pay your taxes is pretty small, but if your income varies widely from year to year so you don't know how much you'll owe until December; or if you're subject to RMDs and have the withholding taken out of that, it makes sense.

 

[Cobra9777]

Escaping penalties and interest is exactly the reason to do it this way...

Yes... but for me, it's mainly about: (1) not having to make quarterly estimated payments at all, and (2) not having to use Form 2210 to prove I wasn't under-withheld due to uneven income. I make a huge Roth conversion each Dec and pay the tax on Jan 15. Without Form 2210, I would owe a penalty. That form can be a hassle.

The additional part I learned this year was to pay back the tIRA withdrawal as a rollover within 60 days. Since most of our tax liability is from the Roth conversion, this enables me to use taxable funds to pay the conversion tax, which has some well-documented advantages vs using tax-deferred funds.

 

[OldShooter]

Escaping penalties and interest is exactly the reason to do it this way. ...

Agreed, but by using the safe harbor rule it means we don't have to worry in the least about calculating estimated taxes. The cost of that sloth is simply the lost interest on any overpayment amount which, especially these days, is IMO negligible.