Tax on Roth Conversion

[Alex The Great]

I know this topic has been discussed before on this forum. But I'm still not sure how it can be applied to my specific situation, and decided to ask.
Situation is that I plan to work ~6 months during 2023 in particular Jan, Feb, Jun, Jul, Aug, Sep (taking a leave Mar to May) and retire by Oct. As usual tax will be withheld by employer during the time I work, likely more than required. Also I do have some investment income <$20K annually (most are qualified dividends) and taxes are not withheld during the year. The total income would be definitely greater than $150K. Also I plan to do ~$50K Roth conversion in Jan. I always pay 100% tax due in Feb each year, for previous tax year.
Do I have to pay tax on Roth conversion by Apr 2023, to avoid the underpayment penalty? I assumed I still could pay all taxes in Feb 2024 for entire 2023 tax year as I always do but have some doubts. Your advise would be greatly appreciated.

 

[Jerry1]

Unless you have enough paid in or are otherwise covered under the safe harbor provisions, you have to pay the estimated taxes for 2023 by January 15th, 2024 (unless it falls on a weekend). That would include the tax owed due to a ROTH conversion.

 

[audreyh1]

You need to look up the annualized income method of estimated taxes if the other safe harbors won’t work for you.

Total income in the first quarter is multiplied by 4 and taxes calculated on that. Then you pay 22.5% of those taxes on April 15 2023.

Unless you have enough paid in or are otherwise covered under the safe harbor provisions, you have to pay the estimated taxes for 2023 by January 15th (unless it falls on a weekend). That would include the tax owed due to a ROTH conversion.

He’s talking about his 2023 taxes.

 

[SevenUp]

...tax will be withheld by employer during the time I work, likely more than required.

If by "more than required" you mean "more than required to meet at least one of the Safe harbors, considering the total tax liability for all income during 2023" then no estimated tax payments are needed.

 

[Alex The Great]

If by "more than required" you mean "more than required to meet at least one of the Safe harbors, considering the total tax liability for all income during 2023" then no estimated tax payments are needed.

I don't know exactly how much it would be but definitely more than 110%. But this is for 2023 tax year. If I understand it correctly it should happen for 2022 tax year which may not be the case.

 

[Montecfo]

I would estimate taxes for the year and have employer adjust my withholding.

 

[Alex The Great]

I would estimate taxes for the year and have employer adjust my withholding.

Thanks I think it is a great idea.

 

[Jerry1]

You need to look up the annualized income method of estimated taxes if the other safe harbors won’t work for you.

Total income in the first quarter is multiplied by 4 and taxes calculated on that. Then you pay 22.5% of those taxes on April 15 2023.


He’s talking about his 2023 taxes.

Understood. I should have said January 15, 2024. I edited my post.

 

[SevenUp]

...tax will be withheld by employer during the time I work, likely more than required.

If by "more than required" you mean "more than required to meet at least one of the Safe harbors, considering the total tax liability for all income during 2023" then no estimated tax payments are needed.

I don't know exactly how much it would be but definitely more than 110%. But this is for 2023 tax year. If I understand it correctly it should happen for 2022 tax year which may not be the case.

Not understanding "But this is for 2023 tax year" nor "it should happen for 2022 tax year". I assumed the withholding will occur in 2023 and it is safe harbors for the 2023 tax year that you seek.

Can you clarify?

 

[Alex The Great]

Not understanding "But this is for 2023 tax year" nor "it should happen for 2022 tax year". I assumed the withholding will occur in 2023 and it is safe harbors for the 2023 tax year that you seek.
Can you clarify?

Yes that is correct.
But tax withholding for year 2022 is also important, right?

 

[SevenUp]

Yes that is correct.
But tax withholding for year 2022 is also important, right?

Withholding for TY2022 is completely irrelevant when it comes to safe harbors for TY2023.

When the safe harbor description refers to "prior year’s tax" it means the tax you owed before any withholding or estimated tax payments were considered.

Does that help?

 

[Alex The Great]

Withholding for TY2022 is completely irrelevant when it comes to safe harbors for TY2023.

When the safe harbor description refers to "prior year’s tax" it means the tax you owed before any withholding or estimated tax payments were considered.

Does that help?

OK I see. Thanks for clarification!