Roth or not to Roth

[SomedaySoon]

Question - Assuming some folks take withdrawals throughout the year - When do folks pay their fed tax on IRA withdrawals - either RMD's or Roth conversions?

My final IRA withdrawal and Roth Conversion is done late December when I have a good handle on my tax situation. I have my overall extimated yearly tax withheld from the withdrawal. Using this method I avoid having to do quarterly estimated taxes and giving Uncle Sam my money before I have to.....

 

[BAgolfnut]

We use safe harbor rule to pay quarterly estimates and then pay balance with tax return in April. Our income has been increasing slightly over last few years with Roth conversions to irmaa hurdle, but increasing this year to fill 22% bracket.

 

[Dtail]

Did my Roth and for my mom earlier this month.
For my mom, I withhold the full year expected taxes due from her RMD less around $100 so no waiting for a refund.

 

[TheWizard]

Great thread - I'm going through this analysis now. I've done a few Roth conversions - all in late December. I haven't made any IRA withdrawals yet and don't expect to until RMD's

Question - Assuming some folks take withdrawals throughout the year - When do folks pay their fed tax on IRA withdrawals - either RMD's or Roth conversions?

1. When the RMD is taken or Roth conversion is made
2. Pay as part of estimated quarterly taxes
3. Wait until April 15th

I've seen a lot of folks here mention that they pay the tax when they take their RMD.

Seems to me that it would be best to take RMD and/ or Roth conversions at
the end of the year and just pay in April?

Money going into my tax-deferred 403(b) went in monthly from each paycheck. So I started my RMD a few years ago by withdrawing equal monthly amounts, a sort of reverse symmetry to the input phase.

But then I wanted more time at year-end to do rollovers and Roth conversions, so I switched to quarterly RMDs starting 1/15. I have tax withheld from each quarterly payment.

I do a small Roth conversion around this time of year after I'm able to make a good AGI prediction and reasonable IRMAA projections for two years later.
This year's Roth conversion will be around $17,000...

 

[Out-to-Lunch]

Seems to me that it would be best to take RMD and/ or Roth conversions at
the end of the year and just pay in April?

But if you do that, you may well need to file form 2210 to avoid an underpayment penalty (unless you met some safe harbor threshold).

 

[Ronstar]

^^^ Thanks for the above several posts. I'll just do the Roth conversion in late December and pay the tax on my Jan 15th quarterly.

So I guess tax to pay on the Roth conversion portion of total income is simply subtracting what total annual tax that would be due without a Roth conversion from what the total tax would be due with the Roth conversion.

 

[SecondCor521]

^^^ Thanks for the above several posts. I'll just do the Roth conversion in late December and pay the tax on my Jan 15th quarterly.

That should work fine, with the caveat that you may need to complete Form 2210 Schedule AI to avoid or resolve an underpayment penalty assessment by the IRS. I think it is a difficult schedule to complete, but some tax prep software programs provide some help, and opinions do differ on how much hassle it is.

So I guess tax to pay on the Roth conversion portion of total income is simply subtracting what total annual tax that would be due without a Roth conversion from what the total tax would be due with the Roth conversion.

For the purposes of estimated taxes, the IRS doesn't separate out Roth conversions, so to "pay tax on the Roth conversion portion" is not how they look at it.

In your scenario, if you don't meet any of the safe harbors, then the IRS essentially expects you to do your taxes four times a year and pay whatever shortfall is indicated via a "quarterly" payment (which are not quarterly, sigh). So you'd just include whatever Roth conversion you made with all of your other income / deductions / credits / etc., calculate the tax due, and then send in the shortfall by 1/15/2026.

 

[TheWizard]

...So I guess tax to pay on the Roth conversion portion of total income is simply subtracting what total annual tax that would be due without a Roth conversion from what the total tax would be due with the Roth conversion.

Sort of.
What I do is withhold to cover my taxes on other income throughout the year.
Then I figure my Roth conversion for the year in early December; it's $17,000 this year.

My marginal tax bracket is 24% Federal so I'll send in an estimated tax payment of maybe $3000 in early January. That sounds a bit low but I tend to be over withheld on my other income...

 

[old medic]

.....sent the IRS the estimated ( ouch...that should go in BTD thread)

I'm looking at it as an investment... the tax we pay out of savings should be recovered in 2 years of growth

 

[Ronstar]

I did some guesstimates through 2030. Our RMD's will take us from mid 12% bracket to mid 24% in the course of a few years. From $6k in Fed tax in 2025 to $56k in 2030. Our problem is that our IRAs are 87% of our portfolio.

I don't see us going above the 24% bracket, but who knows that far down the road.

I think I'll do a $32k conversion to get us to the top of the 12% bracket this year. I just can't push myself to pay much more tax now to avoid tax later.

 

[RetireBy90]

I did some guesstimates through 2030. Our RMD's will take us from mid 12% bracket to mid 24% in the course of a few years. From $6k in Fed tax in 2025 to $56k in 2030. Our problem is that our IRAs are 87% of our portfolio.

I don't see us going above the 24% bracket, but who knows that far down the road.

I think I'll do a $32k conversion to get us to the top of the 12% bracket this year. I just can't push myself to pay much more tax now to avoid tax later.

QCDs are a great answer. Never gets taxed !!!

 

[ransil]

I'm looking at it as an investment... the tax we pay out of savings should be recovered in 2 years of growth

That is about how I figured it and if no conversion now 15 yrs from now it would be double.

 

[big-papa]

That should work fine, with the caveat that you may need to complete Form 2210 Schedule AI to avoid or resolve an underpayment penalty assessment by the IRS. I think it is a difficult schedule to complete, but some tax prep software programs provide some help, and opinions do differ on how much hassle it is.

It depends on the software. I use H&R Block and they definitely could make it easier. One interview question just leads you directly to the form itself. It is able to prepopulate some of the form but not all of it. There is more that it could pre-populate (I've sent them feedback on this). I use the annualization method for paying estimated taxes so much of what it needed, I already have ready to go. Still, it took me a few iterations to get it right.

When I use the annualization method, I'm truly using "pay as you go" - that is, I haven't yet done the Roth conversion so it's not included in the first 3 payments, only the last one since that covers the time period where the conversion actually takes place.

Cheers.

 

[DreamingOfFI]

I seem to be the only person who had never seen the dinkytown calculators site. Thank you for pointing this out!

 

[Al18]

I've been a member here for over a decade, and only visited dinkytown for the first time 2 months ago, because they had a 1040 calculator updated for the OBBB. Their 1040 calculator has a lot more features than the typical online tax calculator.

 

[Livefree]

I've been using this calculator and it's been updated with the new deductions.

IRS & State Tax Calculator | 2005 -- 2025

Easily and accurately calculate IRS & State personal income taxes online.

www.irscalculators.com

 

[junkanoo]

I've been using this calculator and it's been updated with the new deductions.

IRS & State Tax Calculator | 2005 -- 2025

Easily and accurately calculate IRS & State personal income taxes online.

www.irscalculators.com

Not sure about all of that.

A married couple with one person 65+ would have a standard deduction of $33,100 in 2025, not the $31,500 listed.

As it didn't do that right ... I stopped there.

 

[Ronstar]

I seem to be the only person who had never seen the dinkytown calculators site. Thank you for pointing this out!

I hadn't seen it either until I read this thread. Amazing the things we learn on this board!

I checked it by entering my 2024 data and Dinkytown matched my 2024 return, so I figured that it's good enough to project 2025 tax.

 

[RetireBy90]

I hadn't seen it either until I read this thread. Amazing the things we learn on this board!

I checked it by entering my 2024 data and Dinkytown matched my 2024 return, so I figured that it's good enough to project 2025 tax.

Lots of changes for 2025, I’m still evaluating, but looks like a good tool.

 

[Ronstar]

Thinking about a $32k Roth conversion to take us to the top of the 12% bracket.
But our taxable income would be $41,659 more if we take a $32k conversion.
Due to an $8291 increase in taxable SS benefits and $1368 reduction in the $12k senior deduction caused by raising our income $32k from the Roth Conversion.

So it makes sense to take your Roth conversions before starting SS benefits.

 

[TheWizard]

Thinking about a $32k Roth conversion to take us to the top of the 12% bracket.
But our taxable income would be $41,659 more if we take a $32k conversion.
Due to an $8291 increase in taxable SS benefits and $1368 reduction in the $12k senior deduction caused by raising our income $32k from the Roth Conversion.

So it makes sense to take your Roth conversions before starting SS benefits.

That's going to vary from one to the next.
In my case, 85% of my SS has been taxable since day one.
And I'm well beyond the phase-out for that senior deduction.

Looks like my $17,000 Roth conversion will get me a bit into NIIT territory but that's gunna happen sooner or later since it's not indexed...

 

[RetiredHappy]

That's going to vary from one to the next.
In my case, 85% of my SS has been taxable since day one.
And I'm well beyond the phase-out for that senior deduction.

Looks like my $17,000 Roth conversion will get me a bit into NIIT territory but that's gunna happen sooner or later since it's not indexed...

This year our taxable income goes right up to the next level of IRMAA, and paying quite a bit of income tax at 24%, plus NIIT. Next year we will try to not cross into 24% and not hit NIIT.

 

[TheWizard]

That's going to vary from one to the next.
In my case, 85% of my SS has been taxable since day one.
And I'm well beyond the phase-out for that senior deduction.

Looks like my $17,000 Roth conversion will get me a bit into NIIT territory but that's gunna happen sooner or later since it's not indexed...

But I agree, better to do "larger" Roth conversions in your 60s before starting SS at age 70.
That's what I did...

 

[Ronstar]

That's going to vary from one to the next.
In my case, 85% of my SS has been taxable since day one.
And I'm well beyond the phase-out for that senior deduction.

Looks like my $17,000 Roth conversion will get me a bit into NIIT territory but that's gunna happen sooner or later since it's not indexed...

This year our taxable income goes right up to the next level of IRMAA, and paying quite a bit of income tax at 24%, plus NIIT. Next year we will try to not cross into 24% and not hit NIIT.

I don't feel so bad after seeing your tax situations. But I'll be in your situations at some point - I'm projecting that we'll be in mid 24% bracket in 2028 after DW and I get into RMDs.

 

[Gumby]

I just want to point out that RMD is an IRS specified number, not any specific withdrawal. You can make many withdrawals from your tIRA, 401k, etc. (and do with them whatever you want, except rollover to a Roth), so long as the withdrawal total exceeds the RMD amount (tIRAs collectively, and 401k's individually).