How to Pay Taxes on Roth Conversions
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- Опубликовано: 16 окт 2023
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We all know that Roth conversions can be a powerful tax savings strategy for retirees, but how do you actually pay the taxes when doing a conversion?
Listen in to this week's episode to learn about the 2 ways to pay your conversion taxes:
- Withhold the taxes
- Pay the taxes with cash
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Website: www.rivertreewealth.com
LinkedIn: / jacobduke
Jacob Duke, CFP, MBA is the founder of Rivertree Wealth and the host of the Retirement Answers podcast.
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DISCLAIMER: This video is not meant to be taken a tax, legal, or investment advice. All content is for educational purposes only.
#retirement #howmuchtoretire #retirementplanning #rothira #rothconversion #investing #401k #socialsecurity
Thanks Jacob! Would be really helpful to walk through an example with sample income and respective tax rates etc.
Great suggestion! I’ll add this to the list of topics to cover. Thanks!
Agreed!
I like the sidebar with the words. For someone hearing impaired, this is really helpful. However the highlighting each word as it is spoken is not helpful but rather distracting. The format and content is great just not the flashing highlighting.
Thanks for this feedback! I am changing this up starting this week. Stay tuned.
Can you do a Roth conversion once a year every year for the rest of your life after you have retired?
That’s correct. You can do as many Roth conversions as you would like regardless of your age.
Great content! Would you ever recommend paying for roth conversion taxes using funds from a roth 401K account that is older than 5 years? I am 60 years old and am retiring this year. Thanks!
Thank you! Glad it’s helpful. If you did that, you would end up with the same amount in Roth accounts as if you withheld the taxes on the conversion. Seems like it would be a wash to me.
If I do a roth conversion in December and pay the taxes in my 4th quarter tax bill, will I still be assessed a penalty because the IRS considers the conversion with a start date of January 1st, and hence I did not pay enough taxes in quarterly payments 1, 2, & 3? Thank you.
@donnasides4369 great question. Here is the answer... Technically, you are supposed to pay estimated quarterly taxes on the conversion. If you don't (like the example you gave) you would likely be penalized for "underpayment" of taxes. Now there is a workaround for this. The IRS allows you to recompute the penalty under the ‘annualized method’. Under the annualized method, income is reflected in the quarter actually received. This will generally eliminate the penalty, but you are required to attach the penalty computation (Form 2210) along with the annualization schedule when filing your taxes. Also, every state has different rules on how this works for state income taxes. Obviously, this get's pretty technical so I would recommend speaking with your trusted tax advisor and your financial advisor to make sure everything is done correctly to minimize any tax penalties. Thank you for the question!
Thanks for the prompt reply. Yes the annualized would work, but I will also be paying more than I paid last year, (>100%) so I think that criteria works too, and I would be paying at least 90% of what I owe this year, so I believe I should be all set. Thanks again great videoe.@@RetirementAnswers
You pay income tax only no SS tax?
That’s correct!