When is the tax on a Roth conversion due?

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MikeV
MikeV Member Newcomer

In December I converted about $90K from an IRA to a Roth. I am retired but working part time. If I have submitted quarterly payments to cover my usual tax liability. By when must I pay the taxes that result from my conversion? Can I wait until I file my taxes in February or should I send another payment now?

Mike V.

Answers

  • CoryF
    CoryF FreeTaxUSA Agent
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    That is a great question, Mike V.

    Congratulations on preparing for the taxes that will be due on the conversion of your IRA contributions to a Roth IRA. The ultimate date for what will be owed is when you file your 2023 tax return in 2024 up to April 15th, the last day to file. If you are confident that you have paid enough to owe less than $1,000 (threshold for underpayment penalties by the IRS) at the time of filing, then you can rest on sending another payment. You can create or log into your 2023 FreeTaxUSA account to predict how much you may owe on this conversion now before the end of the 2023 year to have the confidence you need on if another payment is required.

  • PhillipB
    PhillipB FreeTaxUSA Team
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    Hello, and thanks for joining our community.

    Without knowing the specifics of your tax situation, I can only answer in generalities.

    Ideally, you should pay as much of the tax on the conversion as possible before the end of the calendar year in order to reduce any potential underpayment of estimated tax penalty (usually a low amount, but a penalty nonetheless). However, you have to pay the tax by the April filing deadline at the latest in order to avoid higher penalties for failure to pay income taxes (.5% per month late after 4/15 with a maximum of 5% of the unpaid tax).

    Let me know if there is anything else that I can do for you.

  • MikeV
    MikeV Member Newcomer
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    Thanks for the responses but I think I should provide more info. The investment folks who made the Roth conversion said that I did not need to worry about the taxes on this until I file in February. I expect that I will owe at least $20,000 at that time. I was hoping to keep that sum invested longer and not have to pay that tax until Feb because I will have paid more in taxes by the end of this month (Dec) than I paid in 2022. The rule I was told is that as long as you have paid more taxes, by the end of the year, than you paid in total in the previous year that I would not have a penalty imposed. Thoughts? Sounds like you both advocate paying the conversion tax by the end of this month (Dec).

    Thanks,

    Mike V.

  • PhillipB
    PhillipB FreeTaxUSA Team
    edited December 2023
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    Waiting until February should work based on the additional information you have provided.