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Does anyone know off-hand or from experience when taxes are due after a rollover from a Traditional IRA to a Roth? I can't find the answer on the IRS website. I'm wondering if it's legal to rollover now and not have to pay the taxes until April 15th.

Thanks for any insight on this.


Paul
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Does anyone know off-hand or from experience when taxes are due after a rollover from a Traditional IRA to a Roth? I can't find the answer on the IRS website. I'm wondering if it's legal to rollover now and not have to pay the taxes until April 15th.

Thanks for any insight on this.


Paul



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Rollover is a term used to describe moving money from one tax defered account to another tax defered account. eg rollover froma 401k to a traditional IRA. What you are asking about is called a roth "conversion".

The amount rolled over is subject to ordinairy income taxes and would be included in your income for that years tax filing due April 15. However, the rollover may put you into the situation where you may need to make estimated tax payments prior to April 15. This would be based on your meeting one of the so called safe harbors or not.

bhm, done some rollovers and some conversions...



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The amount rolled over is subject ....

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Duh! To be consistent, I should have said the amount converted is subject.....
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Thanks for the info! It's good to know what it is I'm actually trying to do here, ie, conversion.

Sounds like I need to find out if I meet criteria for "Safe Harbour," which I probably do, as this is pretty low-level stuff. At most the "extra income" may catapult me just over the threshold of the 25% tax bracket.



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For Federal tax, to avoid penalty on underwithholding, you must have withheld (employer + estimate withholdings) during the year

- At least 90% of the total tax due (line 63 of the 2006 1040) or
- At least 100% of the previous year's tax (110% if you are married filing jointly and your AGI is greater than $150,000), or
- The balance due (line 76) is less than $1,000

Meeting any of these means you will not have to pay an underwithholding penalty for the year in which you had the added income from the Roth Conversion (or large realized capital gains, or any other forms of large unexpected income that did not have anything withheld and send to the IRS).

Even if you don't meet one of the above, you may be able to minimize the penalty by showing on a form 2210 that your unexpected income occured late in the year. But be advised, filling out a 2210 can be hazardous to your health....you almost must do it in TurboTax or one of the other tax prep programs.

BruceM

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BruceM,

Yes, I'm wading through the 2210 pdf right now without a booklet and getting a little overwhelmed!

I'm interested in your second point above, that to avoid a penalty on underwithholding I would need to have withheld during the year "at least 100% of the previous year's tax." I'm single and I always get a return of at least $600 due to over-withholding, this, for the last 6 years including last year. It sounds to me that based on your info, I could skip the 2210? This seems too generous of the IRS. If my interpretation of your info is correct, I wonder what the IRS's rationalization is, for allowing an individual to pay later based only on the year before.

Paul
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Paul
The reason for the "100% of previous year" rule is often individuals don't know what their income is going to be for the current year, due to things like vesting stock grants, involuntary sales or even prizes they don't know the value of. So when these kinds of unknown's are looming and the taxpayer knows that this year's income will be substantially greater than last years, then the '100% of last year's tax' withholding rule can be quite beneficial in avoiding those pesky underwithholding penalties.

BruceM
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to avoid a penalty on underwithholding I would need to have withheld during the year "at least 100% of the previous year's tax." I'm single and I always get a return of at least $600 due to over-withholding, this, for the last 6 years including last year. It sounds to me that based on your info, I could skip the 2210?

No. "previous year's tax" refers to the total tax owed on the 1040, BEFORE you apply any withholdings. In other words, your withholdings minus your refund.
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