The other method is to cover 90% of your anticipated current year tax liability - it’s 80% for New Jersey. Your four quarterly payments will be the same amount.” “It’s easy to calculate and requires no guesswork. “This is a popular method and works well when your income tends to be consistent,” Fusillo said. This means you must cover 100% of your prior year tax liability in the current year - 150% if your adjusted gross income exceeds $150,000 - in order to avoid the underpayment penalty, she said. In addition, there are two methods to base the calculation of your estimated payments and avoid a penalty for underpayment of estimated tax, she said.įirst, you can pay on a safe harbor basis. “Some examples would be investment income, self-employment income, and rental income, just to name a few.” “Generally speaking, this is necessary when you have sources of income that are substantial enough and that are not covered by withholding,” she said. Your 2022 tax return is due April 15, 2023, so, potentially, you could delay paying the conversion tax in part or in whole until that time.Īs you noted, some taxpayers must make quarterly estimated tax payments, Fusillo said. “Converting earlier in the year may allow you more time to pay the taxes, because, in general, taxes are due upon filing the tax return for the year in question.” “Your planned conversion, while set to occur early in the year, does not necessarily mean the resulting tax liability has to be paid at the same time,” she said.
You do want to make sure you have sufficient assets outside of the IRA to pay the resulting taxes, said Cynthia Fusillo, a certified public accountant with Peapack Private Wealth Management in New Providence. If I roll over $100,000 on from a traditional IRA to a Roth - for tax year 2022 - when do I need to pay the tax? For example, if I’m in the 24% tax bracket, do I pay $24,000 immediately or can I make estimated quarterly payments of $6,000 each?Ī. The tax liability on a Roth conversion is one of the most important considerations before you make a move.
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