I think that may be "technically" true. But the 1099R reporting the conversion does not indicate when the conversion took place. I'm not an expert, but I believe the IRS simply wants to see estimated payments spread out more or less equally throughout the year. Perhaps others can confirm my understanding.Federal taxes are pay as you go. If you do a taxable ROTH conversion of 140k in the first quarter of this year, I assume that this means that you must also pay the taxes due on that conversion in the first quarter.
You made another point in your post that one might do the conversion in the last quarter and pay the estimated tax for the conversion in that quarter. That is also technically correct. However, in that scenario, in order to avoid a penalty, you would need to "annualize" your income when you get to the penalty calculation on your tax return. That is a bit complicated, but certainly doable. There is no advantage in postponing the conversion until the end of the year. One could argue that by doing the conversion early in the year, those converted funds will grow tax free throughout the remainder of the year. This is pretty much a personal choice. I don't think there is a right or wrong answer.
Statistics: Posted by JazzTime — Fri Feb 23, 2024 3:47 pm — Replies 9 — Views 708