Agree with most of the above, but there is a tricky possible workaround available to preserve the tax-favored space if withholding is elected, involving using the once-a-year rollover provision to redeposit the amount withheld for taxes into the Roth IRA. Tricky because you have to be very careful to observe all the rules exactly and not have accidentally done any other transaction that could be considered the once-a-year rollover.While it is true that withholding extra taxes from your Roth conversion will be considered timely with regards to income earlier in the year, this is unlikely to be optimal, as you are sacrificing tax-favored space.Hi everyone
Last year (2023) I did a Roth conversion and I plan and continuing to do a Roth conversion again for the next few years.
I am retired but have a small side business. My other half also has a small income from self employment. Income total is about $30K - $40K between both of us (we file jointly). I did my normal quarterly tax payments and I had taxes taken out at the time of the Roth conversion. We received a tax refund this year. For 2022, we ended up paying a little more at tax time (quarterly payments were not quite enough, no Roth conversion). I have been making quarterly tax payments because of the self employment for years. My tax guys is telling me that I don't need to make quarterly tax payments this year if i plan to have taxes taken out of my Roth conversion even if do the conversion in December.
I remember seeing on here that some have stated that taxes are due in the quarter income is made. I will make sure taxes taken out for the Roth conversion in December are more than what I need to pay for the year. If this is ok then it seems like everyone would just make one large payment in December and not in the other quarters. Thoughts? So am I ok as long as the taxes paid into the IRS is more than is expected for the year, even though there was income in the first 3 quarters with no taxes paid?
Thx
You will likely be much better off transferring the full value from your traditional IRA into your Roth IRA and paying the taxes from your taxable account. That would then require you to also make quarterly estimated tax payments for your earlier income. If you can predict how large of a Roth conversion you intend to make, you can also make quarterly estimated tax payments for that as well, saving yourself from having to file form 2210 with schedule AI. And in that case, why wait until the end of the year to make the Roth conversion?
As for why wait until end of year for conversion, since OP and spouse have self-employment income, which can fluctuate in unpredictable ways, it can be hard to figure the optimal amount of conversion earlier in the year, especially if trying to navigate around things like ACA cliffs.
Statistics: Posted by dodecahedron — Wed Mar 27, 2024 9:43 am
