Paying Roth-IRA conversion taxes

[khale7]

[Topic is now in Personal Finance (Not Investing) - tax question. mod mkc]

Hi all,

I plan to make a Roth IRA conversion this year (in March) and wanted to confirm how I should pay the estimated taxes due. I actually used an AI model (Perplexity) to check and It recommended 3 quarterly payments only. Is the model correct that a payment made by April 2025 would not apply? Thanks.

Question for AI: The payment schedule only shows 3 quarterly payments. Should I be making a payment by April 15, 2025?

AI response:
You are correct to question the payment schedule. While the Roth conversion was initiated in March 2025, that does **not** exempt you from potentially needing to make an estimated tax payment by April 15, 2025.

**Here's the breakdown:**

The April 15th deadline is for your **2024** tax liability. It's entirely separate from the 2025 Roth conversion.

Whether you need to make an estimated payment by April 15, 2025, depends on your *2024* tax situation. Specifically, consider these two "safe harbor" rules:

1. **90% Rule**: Did you pay (through withholding, estimated payments, or a combination) at least 90% of the *total tax shown on your 2025 return*?
2. **100% (or 110%) Rule**: Did you pay at least 100% of the *total tax shown on your 2024 return*? (If your 2024 adjusted gross income (AGI) was over $150,000, this threshold becomes 110%).

*If either of these conditions is met, you typically won't owe an underpayment penalty for 2025, and you can start your quarterly payments with the June 15, 2025 deadline.*

*If neither of these conditions is met, you might be subject to an underpayment penalty. To avoid this, you should either:*

* Make an estimated tax payment by April 15, 2025, large enough to meet one of the "safe harbor" requirements, *or*
* Increase your withholding from other income sources (e.g., taxable dividends, pension distributions, or even from your spouse's wages, if applicable) to cover the shortfall.

**In summary:**

* The three-payment schedule (June 15, Sept 15, Jan 15) applies to the taxes due specifically *because* of the Roth conversion *in 2025*.
* The need for an April 15, 2025, payment depends entirely on your 2024 tax situation and whether you met a "safe harbor" requirement for *that* year.

To determine if you need to make an April 15th payment, calculate your 2024 tax liability and compare it to your total payments (withholding + any estimated tax payments made in 2024).

[bynomial]

There is another thread viewtopic.php?p=7728473#p7728473 that outlines a strategy of using withholdings from conversions to pay the taxes instead of quarterly payments

[FiveK]

I actually used an AI model (Perplexity) to check and It recommended 3 quarterly payments only. Is the model correct that a payment made by April 2025 would not apply?

Yet another confirmation that one should not rely on AI answers.

See Safe harbors for a correct answer.

[Longdog]

Wow is that wrong. The April 15, 2025 deadline is for both the taxes due on your 2024 return as well as the first estimated payment toward your 2025 taxes.

[khale7]

Wow is that wrong. The April 15, 2025 deadline is for both the taxes due on your 2024 return as well as the first estimated payment toward your 2025 taxes.

Yes, that's what I thought.

[CAsage]

Yup, AI totally wrong. It's even a tad more complicated - if your Roth IRA conversion was in January, then technically you owe all the taxes by the April estimated tax due date (because the IRS wants their money on the same quarterly schedule as taxes were incurred). Since the 1099-R doesn't report the dates... well, technically it's due in April. Personally (since I'm like, old, over 59.5) I do my planned IRA conversion plus the taxes I intend to pay from the IRA to the Roth IRA in January and then pay the taxes from the Roth in December. Of course, it's better to pay the taxes from non-sheltered regular funds but I've spent all those!

[Kruser64]

Yup, AI totally wrong. It's even a tad more complicated - if your Roth IRA conversion was in January, then technically you owe all the taxes by the April estimated tax due date (because the IRS wants their money on the same quarterly schedule as taxes were incurred). Since the 1099-R doesn't report the dates... well, technically it's due in April. Personally (since I'm like, old, over 59.5) I do my planned IRA conversion plus the taxes I intend to pay from the IRA to the Roth IRA in January and then pay the taxes from the Roth in December. Of course, it's better to pay the taxes from non-sheltered regular funds but I've spent all those!

So you are taking a Roth distribution in December and having the custodian withhold taxes on that distribution? Then I think your plan works.

I do have non-sheltered regular funds...but I still juggle. Tax gain harvest in even years, roth convert in odd years.

[Dregob]

[Topic is now in Personal Finance (Not Investing) - tax question. mod mkc]

Hi all,

I plan to make a Roth IRA conversion this year (in March) and wanted to confirm how I should pay the estimated taxes due. I actually used an AI model (Perplexity) to check and It recommended 3 quarterly payments only. Is the model correct that a payment made by April 2025 would not apply? Thanks.

Question for AI: The payment schedule only shows 3 quarterly payments. Should I be making a payment by April 15, 2025?

AI response:
You are correct to question the payment schedule. While the Roth conversion was initiated in March 2025, that does **not** exempt you from potentially needing to make an estimated tax payment by April 15, 2025.

**Here's the breakdown:**

The April 15th deadline is for your **2024** tax liability. It's entirely separate from the 2025 Roth conversion.

Whether you need to make an estimated payment by April 15, 2025, depends on your *2024* tax situation. Specifically, consider these two "safe harbor" rules:

1. **90% Rule**: Did you pay (through withholding, estimated payments, or a combination) at least 90% of the *total tax shown on your 2025 return*?
2. **100% (or 110%) Rule**: Did you pay at least 100% of the *total tax shown on your 2024 return*? (If your 2024 adjusted gross income (AGI) was over $150,000, this threshold becomes 110%).

*If either of these conditions is met, you typically won't owe an underpayment penalty for 2025, and you can start your quarterly payments with the June 15, 2025 deadline.*

*If neither of these conditions is met, you might be subject to an underpayment penalty. To avoid this, you should either:*

* Make an estimated tax payment by April 15, 2025, large enough to meet one of the "safe harbor" requirements, *or*
* Increase your withholding from other income sources (e.g., taxable dividends, pension distributions, or even from your spouse's wages, if applicable) to cover the shortfall.

**In summary:**

* The three-payment schedule (June 15, Sept 15, Jan 15) applies to the taxes due specifically *because* of the Roth conversion *in 2025*.
* The need for an April 15, 2025, payment depends entirely on your 2024 tax situation and whether you met a "safe harbor" requirement for *that* year.

To determine if you need to make an April 15th payment, calculate your 2024 tax liability and compare it to your total payments (withholding + any estimated tax payments made in 2024).

Sometimes Artificial Intelligence is Artificial Idiocy.

[Epsilon Delta]

Yup, AI totally wrong. It's even a tad more complicated - if your Roth IRA conversion was in January, then technically you owe all the taxes by the April estimated tax due date (because the IRS wants their money on the same quarterly schedule as taxes were incurred).

If "technically" means by the strict letter of the law this is wrong. The IRS does not track, and does not want to track, income by quarters. Assigning income by quarters is an election the taxpayer can make (in some circumstances it reduces a penalty) but it is never required.

[retiredjg]

I plan to make a Roth IRA conversion this year (in March) and wanted to confirm how I should pay the estimated taxes due. I actually used an AI model (Perplexity) to check and It recommended 3 quarterly payments only. Is the model correct that a payment made by April 2025 would not apply? Thanks.

I believe the AI information is wrong. Assuming you don't want to use some withholding method to pay the taxes, I believe there are 2 ways to do this that don't involve a penalty (assuming you meet a safe harbor for your taxes as a whole).

1. Pay all the conversion tax by April 15 (first estimated tax payment date).

2. Divide the tax into 4 equal payments and make 4 equal payments on/by the 4 estimated tax payment dates.


So far, AI seems to be batting a zero on financial information and might be best to avoid.

[Kruser64]

I plan to make a Roth IRA conversion this year (in March) and wanted to confirm how I should pay the estimated taxes due. I actually used an AI model (Perplexity) to check and It recommended 3 quarterly payments only. Is the model correct that a payment made by April 2025 would not apply? Thanks.

I believe the AI information is wrong. Assuming you don't want to use some withholding method to pay the taxes, I believe there are 2 ways to do this that don't involve a penalty (assuming you meet a safe harbor for your taxes as a whole).

1. Pay all the conversion tax by April 15 (first estimated tax payment date).

2. Divide the tax into 4 equal payments and make 4 equal payments on/by the 4 estimated tax payment dates.


So far, AI seems to be batting a zero on financial information and might be best to avoid.

Can't you also pay 100/110 of the previous year's tax liability in 4 equal estimated tax payments and then pay the remaining tax due by April 15 of the year following the conversion? That also meets safe harbor and therefore no penalty, correct?

[retiredjg]

I believe the AI information is wrong. Assuming you don't want to use some withholding method to pay the taxes, I believe there are 2 ways to do this that don't involve a penalty (assuming you meet a safe harbor for your taxes as a whole).

1. Pay all the conversion tax by April 15 (first estimated tax payment date).

2. Divide the tax into 4 equal payments and make 4 equal payments on/by the 4 estimated tax payment dates.


So far, AI seems to be batting a zero on financial information and might be best to avoid.

Can't you also pay 100/110 of the previous year's tax liability in 4 equal estimated tax payments and then pay the remaining tax due by April 15 of the year following the conversion? That also meets safe harbor and therefore no penalty, correct?

Yes. I think this poster is just interested in how to pay the tax on the conversion. Maybe other income is covered by withholding.

[khale7]

[/quote]Yes. I think this poster is just interested in how to pay the tax on the conversion. Maybe other income is covered by withholding.
[/quote]

That's correct retiredjg. I retired last April and did a conversion in Dec. and paid the estimated taxes for the conversion. Unfortunately got hit with an underpayment penalty. Currently have no income and or withholding and trying to learn the best strategy going forward. Thanks all!

[Epsilon Delta]

That's correct retiredjg. I retired last April and did a conversion in Dec. and paid the estimated taxes for the conversion. Unfortunately got hit with an underpayment penalty. Currently have no income and or withholding and trying to learn the best strategy going forward. Thanks all!

Did you have a look at form 2210 schedule AI? This would reduce or eliminate the penalty in exactly your circumstances (income and estimated taxes in the 4th quarter).

[khale7]

Did you have a look at form 2210 schedule AI? This would reduce or eliminate the penalty in exactly your circumstances (income and estimated taxes in the 4th quarter).

Yes I did actually. I underestimated my w2 income and there was mismatch between the required quarterly installments versus the withholding made while I was working caused by the roth-ira conversion in Dec. Also did not meet the safe harbor rules.....all in all it wasn't much, but I did get dinged!

[khale7]

Just heads up for future readers, This article by Andy Ives - EdSlott & Co. makes a really important point here: https://irahelp.com/slottreport/roth-co ... -under-59/ for people under 59.5, which would apply to me in this case. Extracted example below:

Example: John is 35 years old. He has a traditional IRA worth $100,000. John discussed the possibility of a Roth conversion with his advisor, but was concerned he did not have the extra funds available to cover the taxes due on the conversion. John’s advisor suggests having the taxes withheld from the IRA. This is bad advice, but John is unaware of the consequences. John converts the entire $100,000 and has $20,000 withheld for taxes. This $20,000 never gets converted. It is an early withdrawal, and John is hit with a 10% penalty of $2,000. John is furious. He contacts his advisor, but the call goes to voicemail. Ironically, John’s advisor is sitting in the crowd at an Ed Slott advisor training program. He is simultaneously turning ghost white as the speaker implores the audience to never have taxes withheld on a Roth conversion for anyone under 59 ½, for all the reasons discussed above.

[CAsage]

Yup, AI totally wrong. It's even a tad more complicated - if your Roth IRA conversion was in January, then technically you owe all the taxes by the April estimated tax due date (because the IRS wants their money on the same quarterly schedule as taxes were incurred).

If "technically" means by the strict letter of the law this is wrong. The IRS does not track, and does not want to track, income by quarters. Assigning income by quarters is an election the taxpayer can make (in some circumstances it reduces a penalty) but it is never required.

False. If you are ever audited, and the IRS sees the Roth conversion date was in January, those taxes are definitely due by April and they can assess a penalty. IMO that means "required" to avoid a penalty. Equal Estimated Payments are only penalty free is if income is equal per quarter. I will also note there a many, many discussions on this forum about the advantages of paying through withholding to avoid this problem. The only way annualizing would benefit a taxpayer if income surged in the last quarter. I'm not willing to chance that they won't check.

Penalty figured separately for each required payment. The penalty is figured separately for each installment due date. Therefore, you may owe the penalty for an earlier due date even if you paid enough tax later to make up the underpayment. This is true even if you’re due a refund when you file your tax return. However, you may be able to reduce or eliminate the penalty by using the annualized income installment method. For details, see Schedule AI Annualized Income Installment Method.

[Kruser64]

If "technically" means by the strict letter of the law this is wrong. The IRS does not track, and does not want to track, income by quarters. Assigning income by quarters is an election the taxpayer can make (in some circumstances it reduces a penalty) but it is never required.

False. If you are ever audited, and the IRS sees the Roth conversion date was in January, those taxes are definitely due by April and they can assess a penalty. IMO that means "required" to avoid a penalty. Equal Estimated Payments are only penalty free is if income is equal per quarter. I will also note there a many, many discussions on this forum about the advantages of paying through withholding to avoid this problem. The only way annualizing would benefit a taxpayer if income surged in the last quarter. I'm not willing to chance that they won't check.

Penalty figured separately for each required payment. The penalty is figured separately for each installment due date. Therefore, you may owe the penalty for an earlier due date even if you paid enough tax later to make up the underpayment. This is true even if you’re due a refund when you file your tax return. However, you may be able to reduce or eliminate the penalty by using the annualized income installment method. For details, see Schedule AI Annualized Income Installment Method.

I hear what you are saying, but what about the 100/110 % of the previous year's tax liability Safe Harbor? If I meet that, then for this year, it does not matter how much I earn, when I earn it, or how much I owe. No penalty. Right?

[VanGar+Goyle]

Wow is that wrong. The April 15, 2025 deadline is for both the taxes due on your 2024 return as well as the first estimated payment toward your 2025 taxes.

There are many exceptions to the April 15, 2025 deadline for estimated taxes, including several states with natural disasters:
Kentucky, and parts of California,

Details are in https://www.irs.gov/newsroom/tax-relief ... situations

Other worldwide disasters from 2023 have extended deadlines past April 2025.

Taxpayers in the entire states of Alabama, Florida, Georgia, North Carolina and South Carolina, and parts of Alaska, New Mexico, Tennessee, Virginia and West Virginia will have until May 1, 2025, to file their 2023 returns. For these taxpayers, May 1 will also be the deadline for filing their 2024 returns and paying any tax due.

[VanGar+Goyle]

Just heads up for future readers, This article by Andy Ives - EdSlott & Co. makes a really important point here: https://irahelp.com/slottreport/roth-co ... -under-59/ for people under 59.5, which would apply to me in this case. Extracted example below:

Example: John is 35 years old. He has a traditional IRA worth $100,000. John discussed the possibility of a Roth conversion with his advisor, but was concerned he did not have the extra funds available to cover the taxes due on the conversion. John’s advisor suggests having the taxes withheld from the IRA. This is bad advice, but John is unaware of the consequences. John converts the entire $100,000 and has $20,000 withheld for taxes. This $20,000 never gets converted. It is an early withdrawal, and John is hit with a 10% penalty of $2,000. John is furious. He contacts his advisor, but the call goes to voicemail. Ironically, John’s advisor is sitting in the crowd at an Ed Slott advisor training program. He is simultaneously turning ghost white as the speaker implores the audience to never have taxes withheld on a Roth conversion for anyone under 59 ½, for all the reasons discussed above.

If only they had read a different 2021 article by Ed Slott about replacing withheld taxes by funds from another source.
https://irahelp.com/slottreport/year-en ... ife-hack/

[Epsilon Delta]

Equal Estimated Payments are only penalty free is if income is equal per quarter. I will also note there a many, many discussions on this forum about the advantages of paying through withholding to avoid this problem.

This is completely wrong. Equal estimated tax payments are penalty free no matter how the income is distributed by quarter. As you say this has been discussed many times, you need to re-read that discussion because you have the wrong end of the stick.

(A)In general
Except as provided in paragraph (2), the amount of any required installment shall be 25 percent of the required annual payment.
...
2)Lower required installment where annualized income installment is less than amount determined under paragraph (1)
(A)In general
In the case of any required installment, if the individual establishes that the annualized income installment is less than the amount determined under paragraph (1)—

[lstone19]

If "technically" means by the strict letter of the law this is wrong. The IRS does not track, and does not want to track, income by quarters. Assigning income by quarters is an election the taxpayer can make (in some circumstances it reduces a penalty) but it is never required.

False. If you are ever audited, and the IRS sees the Roth conversion date was in January, those taxes are definitely due by April and they can assess a penalty. IMO that means "required" to avoid a penalty. Equal Estimated Payments are only penalty free is if income is equal per quarter. I will also note there a many, many discussions on this forum about the advantages of paying through withholding to avoid this problem. The only way annualizing would benefit a taxpayer if income surged in the last quarter. I'm not willing to chance that they won't check.

CAsage, you are incorrect. By default, income is assumed to be earned equally across the year (25% per quarter). Actual timing is irrelevant unless you (and only you, not the IRS) elect to annualize income (on 2210 Schedule AI) which only makes sense if your income was predominantly late in the year. The IRS can never force you to annualize and for your "If you are ever audited, and the IRS sees the Roth conversion date was in January, those taxes are definitely due by April and they can assess a penalty" to be true, the IRS would be forcing you to annualize which they cannot do.