Taxes on 2020 Roth Conversion - Pay When?

[PescadorPete]

I did a Roth conversion the last week of 2020. In the thread where I asked for assistance in determining the conversion amount, it was suggested that I pay the taxes due by January 15, 2021. Why? What happens if I wait and file my return as usual?

While I don't have all the forms yet to file my return, I have run the estimated numbers through TurboTax. (Vanguard HAS sent me the 1099-R for the conversion. I'm still waiting for my other Vanguard and bank forms.) So I have a pretty good idea of my tax liability. And TurboTax didn't flag any penalty for paying my tax liability as usual.

An internet search provides conflicting information on when the taxes are due. Any assistance in figuring this out would be appreciated.

[tibbitts]

I did a Roth conversion the last week of 2020. In the thread where I asked for assistance in determining the conversion amount, it was suggested that I pay the taxes due by January 15, 2021. Why? What happens if I wait and file my return as usual?

While I don't have all the forms yet to file my return, I have run the estimated numbers through TurboTax. (Vanguard HAS sent me the 1099-R for the conversion. I'm still waiting for my other Vanguard and bank forms.) So I have a pretty good idea of my tax liability. And TurboTax didn't flag any penalty for paying my tax liability as usual.

An internet search provides conflicting information on when the taxes are due. Any assistance in figuring this out would be appreciated.

The taxes are due January 15. However, that doesn't mean you'll owe a penalty if you don't pay them. I'm hoping there's no need to pay my six-figure tax bill for my q4 Roth conversions by January 15 either; I'm counting on safe harbor to let my money continue earning .5% a little while longer.

[Spirit Rider]

You only need to make an estimated tax payment on 1/15 if and to the degree you do not meet one of the safe harbors to avoid an underpayment penalty.

• Owe < $1000
• >= 90% of 2020 tax liability
• >= 100% (110% AGI > $150K) of 2019 tax liability.

If you do not meet one of the safe harbors and you do not pay an estimated payment by 1/15 to do so. You will owe an underpayment penalty of 5% from 1/15 - 4/15.

[mikejuss]

You only need to make an estimated tax payment on 1/15 if and to the degree you do not meet one of the safe harbors to avoid an underpayment penalty.

• Owe < $1000
• >= 90% of 2020 tax liability
• >= 100% (110% AGI > $150K) of 2019 tax liability.

If you do not meet one of the safe harbors and you do not pay an estimated payment by 1/15 to do so. You will owe an underpayment penalty of 5% from 1/15 - 4/15.

This is confusing: I thought that when one converted traditional holdings (401[k], IRA) to a Roth IRA in a previous year, the conversion counted as taxable income to be paid by April 15 of the next year.

[pshonore]

You only need to make an estimated tax payment on 1/15 if and to the degree you do not meet one of the safe harbors to avoid an underpayment penalty.

• Owe < $1000
• >= 90% of 2020 tax liability
• >= 100% (110% AGI > $150K) of 2019 tax liability.

If you do not meet one of the safe harbors and you do not pay an estimated payment by 1/15 to do so. You will owe an underpayment penalty of 5% from 1/15 - 4/15.

This is confusing: I thought that when one converted traditional holdings (401[k], IRA) to a Roth IRA in a previous year, the conversion counted as taxable income to be paid by April 15 of the next year.

That's incorrect; we're still on a pay as you go system meaning taxes are due when you earn the money. If you can meet a safe harbor (described above), then you're home free. You can also use Form 2210AI to document when you earned the money if that's more advantageous

[mikejuss]

You only need to make an estimated tax payment on 1/15 if and to the degree you do not meet one of the safe harbors to avoid an underpayment penalty.

• Owe < $1000
• >= 90% of 2020 tax liability
• >= 100% (110% AGI > $150K) of 2019 tax liability.

If you do not meet one of the safe harbors and you do not pay an estimated payment by 1/15 to do so. You will owe an underpayment penalty of 5% from 1/15 - 4/15.

This is confusing: I thought that when one converted traditional holdings (401[k], IRA) to a Roth IRA in a previous year, the conversion counted as taxable income to be paid by April 15 of the next year.

That's incorrect; we're still on a pay as you go system meaning taxes are due when you earn the money. If you can meet a safe harbor (described above), then you're home free. You can also use Form 2210AI to document when you earned the money if that's more advantageous

Thank you for this information. I received a 1099-R from Vanguard for a 2020 conversion of a traditional 401(k) to a Roth IRA only days ago. How do I go about paying taxes on the conversion immediately?

[mikejuss]

You only need to make an estimated tax payment on 1/15 if and to the degree you do not meet one of the safe harbors to avoid an underpayment penalty.

• Owe < $1000
• >= 90% of 2020 tax liability
• >= 100% (110% AGI > $150K) of 2019 tax liability.

If you do not meet one of the safe harbors and you do not pay an estimated payment by 1/15 to do so. You will owe an underpayment penalty of 5% from 1/15 - 4/15.

This is confusing: I thought that when one converted traditional holdings (401[k], IRA) to a Roth IRA in a previous year, the conversion counted as taxable income to be paid by April 15 of the next year.

That's incorrect; we're still on a pay as you go system meaning taxes are due when you earn the money. If you can meet a safe harbor (described above), then you're home free. You can also use Form 2210AI to document when you earned the money if that's more advantageous

Quoth Fidelity: "The federal tax on a Roth IRA conversion will be collected by the IRS with the rest of your income taxes due on the return you file in the year of the conversion. The ordinary income generated by a Roth IRA conversion generally can be offset by losses and deductions reported on the same tax return."

[Miriam2]

You only need to make an estimated tax payment on 1/15 if and to the degree you do not meet one of the safe harbors to avoid an underpayment penalty.

• Owe < $1000
• >= 90% of 2020 tax liability
• >= 100% (110% AGI > $150K) of 2019 tax liability.

If you do not meet one of the safe harbors and you do not pay an estimated payment by 1/15 to do so. You will owe an underpayment penalty of 5% from 1/15 - 4/15.

This is confusing: I thought that when one converted traditional holdings (401[k], IRA) to a Roth IRA in a previous year, the conversion counted as taxable income to be paid by April 15 of the next year.

I think both are true. The conversion amount is added as income on your IRS 1040 taxes by April 15 - but if you have not had enough taxes taken out of your paychecks throughout the previous year to meet your increased income (caused by the amount converted), you may have to pay the IRS penalty for "insufficient pay as you go" taxes - unless you meet the safe harbor reasons.

[mikejuss]

You only need to make an estimated tax payment on 1/15 if and to the degree you do not meet one of the safe harbors to avoid an underpayment penalty.

• Owe < $1000
• >= 90% of 2020 tax liability
• >= 100% (110% AGI > $150K) of 2019 tax liability.

If you do not meet one of the safe harbors and you do not pay an estimated payment by 1/15 to do so. You will owe an underpayment penalty of 5% from 1/15 - 4/15.

This is confusing: I thought that when one converted traditional holdings (401[k], IRA) to a Roth IRA in a previous year, the conversion counted as taxable income to be paid by April 15 of the next year.

I think both are true. The conversion amount is added as income on your IRS 1040 taxes by April 15 - but if you have not had enough taxes taken out of your paychecks throughout the previous year to meet your increased income (caused by the amount converted), you may have to pay the IRS penalty for "insufficient pay as you go" taxes - unless you meet the safe harbor reasons.

That makes sense. Thank you. Is this where I should go if I want to make a payment of estimated taxes on the conversion?

[Miriam2]

You only need to make an estimated tax payment on 1/15 if and to the degree you do not meet one of the safe harbors to avoid an underpayment penalty.

• Owe < $1000
• >= 90% of 2020 tax liability
• >= 100% (110% AGI > $150K) of 2019 tax liability.

If you do not meet one of the safe harbors and you do not pay an estimated payment by 1/15 to do so. You will owe an underpayment penalty of 5% from 1/15 - 4/15.

This is confusing: I thought that when one converted traditional holdings (401[k], IRA) to a Roth IRA in a previous year, the conversion counted as taxable income to be paid by April 15 of the next year.

I think both are true. The conversion amount is added as income on your IRS 1040 taxes by April 15 - but if you have not had enough taxes taken out of your paychecks throughout the previous year to meet your increased income (caused by the amount converted), you may have to pay the IRS penalty for "insufficient pay as you go" taxes - unless you meet the safe harbor reasons.

That makes sense. Thank you. Is this where I should go if I want to make a payment of estimated taxes on the conversion?

Looks right - cannot tell from my iPhone - but I always do a draft 1040 ( or use some tax software draft) with my conversion amount added to my income, leave everything else the same if nothing in your life changed, and figure out the taxes you should owe when you prepare your real 1040 for 2020.

You may not need to pay a Jan 15 estimated extra tax.

When I convert 10,000, 20,000 - I've never paid extra & no penalty. But when I converted $60,000, I paid a $100 penalty - no fun but I knew it was coming

[retired@50]

You only need to make an estimated tax payment on 1/15 if and to the degree you do not meet one of the safe harbors to avoid an underpayment penalty.

• Owe < $1000
• >= 90% of 2020 tax liability
• >= 100% (110% AGI > $150K) of 2019 tax liability.

If you do not meet one of the safe harbors and you do not pay an estimated payment by 1/15 to do so. You will owe an underpayment penalty of 5% from 1/15 - 4/15.

This is confusing: I thought that when one converted traditional holdings (401[k], IRA) to a Roth IRA in a previous year, the conversion counted as taxable income to be paid by April 15 of the next year.

I think both are true. The conversion amount is added as income on your IRS 1040 taxes by April 15 - but if you have not had enough taxes taken out of your paychecks throughout the previous year to meet your increased income (caused by the amount converted), you may have to pay the IRS penalty for "insufficient pay as you go" taxes - unless you meet the safe harbor reasons.

That makes sense. Thank you. Is this where I should go if I want to make a payment of estimated taxes on the conversion?

Looks right - cannot tell from my iPhone - but I always do a draft 1040 ( or use some tax software draft) with my conversion amount added to my income, leave everything else the same if nothing in your life changed, and figure out the taxes you should owe when you prepare your real 1040 for 2020.

You may not need to pay a Jan 15 estimated extra tax.

When I convert 10,000, 20,000 - I've never paid extra & no penalty. But when I converted $60,000, I paid a $100 penalty - no fun but I knew it was coming

The red phrase above gets to the heart of the issue. Whether or not you'll need to make an estimated payment is a function of how big the Roth conversion was/is relative to the rest of your income. If Roth conversion is relatively small, you could be in the clear, if it's large, then you're likely on the hook for an estimated payment by Jan. 15th.
Of course, it never hurts to know and understand the safe harbor rules.

Regards,

[PescadorPete]

Whether or not you'll need to make an estimated payment is a function of how big the Roth conversion was/is relative to the rest of your income. If Roth conversion is relatively small, you could be in the clear, if it's large, then you're likely on the hook for an estimated payment by Jan. 15th.

I'm retired. My only income prior to the large Roth conversion was interest and dividends. (The Roth conversion was 80+% of my income.)

So, is the link above the correct way to directly pay the estimated payment?

[mikejuss]

Whether or not you'll need to make an estimated payment is a function of how big the Roth conversion was/is relative to the rest of your income. If Roth conversion is relatively small, you could be in the clear, if it's large, then you're likely on the hook for an estimated payment by Jan. 15th.

I'm retired. My only income prior to the large Roth conversion was interest and dividends. (The Roth conversion was 80+% of my income.)

So, is the link above the correct way to directly pay the estimated payment?

You can certainly send the IRS an estimated-tax payment through that link, but it all seems loosey-goosey to me. I'm unclear on how to record that payment on one's end-of-year tax filing, so that you're not paying the tax twice and hoping for a refund. I'll probably pay whatever small penalty I may have for my conversion; you may need a bit of guidance from a CPA.

[pshonore]

Whether or not you'll need to make an estimated payment is a function of how big the Roth conversion was/is relative to the rest of your income. If Roth conversion is relatively small, you could be in the clear, if it's large, then you're likely on the hook for an estimated payment by Jan. 15th.

I'm retired. My only income prior to the large Roth conversion was interest and dividends. (The Roth conversion was 80+% of my income.)

So, is the link above the correct way to directly pay the estimated payment?

Do you meet the Safe Harbor described above? If so you can wait until 4/15.

[TravelGeek]

Whether or not you'll need to make an estimated payment is a function of how big the Roth conversion was/is relative to the rest of your income. If Roth conversion is relatively small, you could be in the clear, if it's large, then you're likely on the hook for an estimated payment by Jan. 15th.

I'm retired. My only income prior to the large Roth conversion was interest and dividends. (The Roth conversion was 80+% of my income.)

So, is the link above the correct way to directly pay the estimated payment?

You can certainly send the IRS an estimated-tax payment through that link, but it all seems loosey-goosey to me. I'm unclear on how to record that payment on one's end-of-year tax filing, so that you're not paying the tax twice and hoping for a refund. I'll probably pay whatever small penalty I may have for my conversion; you may need a bit of guidance from a CPA.

Not sure how you prepare your taxes, but TurboTax asks whether I paid estimated taxes over the course of the year (and the dates/amounts). I am too lazy to look at the return to see where that data goes exactly, but it certainly isn't a loosey-goosey thing. You will not pay twice unless you forgot you made the payment. And even then I would expect the IRS to catch that.

[mikejuss]

Whether or not you'll need to make an estimated payment is a function of how big the Roth conversion was/is relative to the rest of your income. If Roth conversion is relatively small, you could be in the clear, if it's large, then you're likely on the hook for an estimated payment by Jan. 15th.

I'm retired. My only income prior to the large Roth conversion was interest and dividends. (The Roth conversion was 80+% of my income.)

So, is the link above the correct way to directly pay the estimated payment?

You can certainly send the IRS an estimated-tax payment through that link, but it all seems loosey-goosey to me. I'm unclear on how to record that payment on one's end-of-year tax filing, so that you're not paying the tax twice and hoping for a refund. I'll probably pay whatever small penalty I may have for my conversion; you may need a bit of guidance from a CPA.

Not sure how you prepare your taxes, but TurboTax asks whether I paid estimated taxes over the course of the year (and the dates/amounts). I am too lazy to look at the return to see where that data goes exactly, but it certainly isn't a loosey-goosey thing. You will not pay twice unless you forgot you made the payment. And even then I would expect the IRS to catch that.

Hmm--perhaps I'll seek out that form on my Credit Karma tax return.

But what is the significance of January 15, 2021? Why does the payment need to be made by then?

[David Jay]

But what is the significance of January 15, 2021? Why does the payment need to be made by then?

Estimated taxes are quarterly events, income earned in the 4th quarter is due January 15.

[TravelGeek]

But what is the significance of January 15, 2021? Why does the payment need to be made by then?

Estimated taxes are quarterly events, income earned in the 4th quarter is due January 15.

Exactly.

https://www.irs.gov/faqs/estimated-tax/ ... ividuals-2

[lakpr]

You will not pay twice unless you forgot you made the payment. And even then I would expect the IRS to catch that.

I will vouch for this. In 2018 I rolled over the prior year's tax refund to be applied for 2018 taxes. Then in 2019 I changed tax software, and prepared taxes from scratch, and completely forgot about the prior year tax refund being applied to 2018 tax year. About six months later, I got a notice from IRS along with the check saying "hello, you overpaid .. .here is the amount + interest". Yes, they did pay a small amount of interest when refunding.

[retired@50]

Whether or not you'll need to make an estimated payment is a function of how big the Roth conversion was/is relative to the rest of your income. If Roth conversion is relatively small, you could be in the clear, if it's large, then you're likely on the hook for an estimated payment by Jan. 15th.

I'm retired. My only income prior to the large Roth conversion was interest and dividends. (The Roth conversion was 80+% of my income.)

So, is the link above the correct way to directly pay the estimated payment?

I believe the link above is correct. If in doubt, just open a new browser window and navigate to irs.gov and look for payments.

As far as where the estimated payments are reported on your 2020 taxes, it appears that Line 26 of Form 1040 would be a good place to start. Maybe read the instructions for any clarification, if needed.

Regards,

[bpg1234]

You only need to make an estimated tax payment on 1/15 if and to the degree you do not meet one of the safe harbors to avoid an underpayment penalty.

• Owe < $1000
• >= 90% of 2020 tax liability
• >= 100% (110% AGI > $150K) of 2019 tax liability.

If you do not meet one of the safe harbors and you do not pay an estimated payment by 1/15 to do so. You will owe an underpayment penalty of 5% from 1/15 - 4/15.

Hi, so my 2019 Turbotax tax forms produced 4 equal estimated 2020 tax payments for both federal and state which I have paid as indicated.
In the 4th Quarter 2020 though I did a large Roth conversion which I did not pay any taxes on yet so not sure if I can continue to pay the last equal estimated payment TurboTax provided on Jan 15, 2021 as indicated or do I need to increase my last Jan 15, 2021 estimated payment?

In looking at 2020 TurboTax federal tax form to date with the estimated tax payments as 2019 TurboTax had indicated I should pay, I don't see any IRS penalty assessed but when doing the safe harbor math I seem to still be below the 110% of 2019 tax liability? Any insight would be greatly appreciated. Thanks in advance.

[lakpr]

You only need to make an estimated tax payment on 1/15 if and to the degree you do not meet one of the safe harbors to avoid an underpayment penalty.

• Owe < $1000
• >= 90% of 2020 tax liability
• >= 100% (110% AGI > $150K) of 2019 tax liability.

If you do not meet one of the safe harbors and you do not pay an estimated payment by 1/15 to do so. You will owe an underpayment penalty of 5% from 1/15 - 4/15.

Hi, so my 2019 Turbotax tax forms produced 4 equal estimated 2020 tax payments for both federal and state which I have paid as indicated.
In the 4th Quarter 2020 though I did a large Roth conversion which I did not pay any taxes on yet so not sure if I can continue to pay the last equal estimated payment TurboTax provided on Jan 15, 2021 as indicated or do I need to increase my last Jan 15, 2021 estimated payment?

In looking at 2020 TurboTax federal tax form to date with the estimated tax payments as 2019 TurboTax had indicated I should pay, I don't see any IRS penalty assessed but when doing the safe harbor math I seem to still be below the 110% of 2019 tax liability? Any insight would be greatly appreciated. Thanks in advance.

You can pay enough to exceed the 110% of 2019 tax liability to reach one of the safe harbors by January 15th. Then pay the remainder along with your tax return due on April 15th.

[bpg1234]

You only need to make an estimated tax payment on 1/15 if and to the degree you do not meet one of the safe harbors to avoid an underpayment penalty.

• Owe < $1000
• >= 90% of 2020 tax liability
• >= 100% (110% AGI > $150K) of 2019 tax liability.

If you do not meet one of the safe harbors and you do not pay an estimated payment by 1/15 to do so. You will owe an underpayment penalty of 5% from 1/15 - 4/15.

Hi, so my 2019 Turbotax tax forms produced 4 equal estimated 2020 tax payments for both federal and state which I have paid as indicated.
In the 4th Quarter 2020 though I did a large Roth conversion which I did not pay any taxes on yet so not sure if I can continue to pay the last equal estimated payment TurboTax provided on Jan 15, 2021 as indicated or do I need to increase my last Jan 15, 2021 estimated payment?

In looking at 2020 TurboTax federal tax form to date with the estimated tax payments as 2019 TurboTax had indicated I should pay, I don't see any IRS penalty assessed but when doing the safe harbor math I seem to still be below the 110% of 2019 tax liability? Any insight would be greatly appreciated. Thanks in advance.

You can pay enough to exceed the 110% of 2019 tax liability to reach one of the safe harbors by January 15th. Then pay the remainder along with your tax return due on April 15th.

Thanks, so I will still need to increase my 4th quarter estimated payment even though TurboTax indicates there is no penalty when doing my 2020 taxes? Also, there is no problem if the 4th quarter estimated payment is higher than the prior three quarters? Thanks again.

[lakpr]

You only need to make an estimated tax payment on 1/15 if and to the degree you do not meet one of the safe harbors to avoid an underpayment penalty.

• Owe < $1000
• >= 90% of 2020 tax liability
• >= 100% (110% AGI > $150K) of 2019 tax liability.

If you do not meet one of the safe harbors and you do not pay an estimated payment by 1/15 to do so. You will owe an underpayment penalty of 5% from 1/15 - 4/15.

Hi, so my 2019 Turbotax tax forms produced 4 equal estimated 2020 tax payments for both federal and state which I have paid as indicated.
In the 4th Quarter 2020 though I did a large Roth conversion which I did not pay any taxes on yet so not sure if I can continue to pay the last equal estimated payment TurboTax provided on Jan 15, 2021 as indicated or do I need to increase my last Jan 15, 2021 estimated payment?

In looking at 2020 TurboTax federal tax form to date with the estimated tax payments as 2019 TurboTax had indicated I should pay, I don't see any IRS penalty assessed but when doing the safe harbor math I seem to still be below the 110% of 2019 tax liability? Any insight would be greatly appreciated. Thanks in advance.

You can pay enough to exceed the 110% of 2019 tax liability to reach one of the safe harbors by January 15th. Then pay the remainder along with your tax return due on April 15th.

Thanks, so I will still need to increase my 4th quarter estimated payment even though TurboTax indicates there is no penalty when doing my 2020 taxes? Also, there is no problem if the 4th quarter estimated payment is higher than the prior three quarters? Thanks again.

Correct, you do need to increase the 4th quarter estimated payment enough to reach the Safe Harbor of 110% * 2019 tax liability.
No issues with the amount being uneven, you do have a strong justification if the IRS questions you : that you incurred the increased tax liability only in the fourth quarter, and made payments to cover that liability before the deadline

[bpg1234]

You only need to make an estimated tax payment on 1/15 if and to the degree you do not meet one of the safe harbors to avoid an underpayment penalty.

• Owe < $1000
• >= 90% of 2020 tax liability
• >= 100% (110% AGI > $150K) of 2019 tax liability.

If you do not meet one of the safe harbors and you do not pay an estimated payment by 1/15 to do so. You will owe an underpayment penalty of 5% from 1/15 - 4/15.

Hi, so my 2019 Turbotax tax forms produced 4 equal estimated 2020 tax payments for both federal and state which I have paid as indicated.
In the 4th Quarter 2020 though I did a large Roth conversion which I did not pay any taxes on yet so not sure if I can continue to pay the last equal estimated payment TurboTax provided on Jan 15, 2021 as indicated or do I need to increase my last Jan 15, 2021 estimated payment?

In looking at 2020 TurboTax federal tax form to date with the estimated tax payments as 2019 TurboTax had indicated I should pay, I don't see any IRS penalty assessed but when doing the safe harbor math I seem to still be below the 110% of 2019 tax liability? Any insight would be greatly appreciated. Thanks in advance.

You can pay enough to exceed the 110% of 2019 tax liability to reach one of the safe harbors by January 15th. Then pay the remainder along with your tax return due on April 15th.

Thanks, so I will still need to increase my 4th quarter estimated payment even though TurboTax indicates there is no penalty when doing my 2020 taxes? Also, there is no problem if the 4th quarter estimated payment is higher than the prior three quarters? Thanks again.

Correct, you do need to increase the 4th quarter estimated payment enough to reach the Safe Harbor of 110% * 2019 tax liability.
No issues with the amount being uneven, you do have a strong justification if the IRS questions you : that you incurred the increased tax liability only in the fourth quarter, and made payments to cover that liability before the deadline

Thanks for your assistance lakpr. Truly appreciate it.

[N.Y.Cab]

This is a good reminder to make the 1040ES payment for 2020 Q4. I did some year end Roth conversion too and want to get some paper Ibonds with the tax refund.