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[[We had enough tax withheld over the 1998 year for our income and deductions
... however, with the Roth IRA conversion included in our income, we owe a
substantial amount of tax. This is not a surprise, however we are concerned that
TURBOTax says we owe a tax penalty due to the substantial underpayment of

That is very possible.

[[ I believe I heard that the IRA conversion dollars are not included when
determining if underpayment would drive a tax penalty.]]

Nope. You heard wrong. Roth IRA conversion income WILL drive the penalty. But if your 1998 withholding is at least as much as your 1997 total tax liability, you may be in the safe harbor zone, and you will NOT owe the penalty. TTax should be able to help you out with this computation. In addition, we discuss the safe harbor in much greater detail in the TMF Investment Tax Guide AND in my post on estimated taxes in the Taxes fAQ area. You might want to check it out for more information.

TMF Taxes

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