Tax time is over. The first year's tax payment for the converted Roth IRA has been sent to IRS. Now that I know how much I have to pay to IRS each year for the next 3 years for the rest of the converted Roth IRA, my question is whether there is a rule on how we should pay it, that is, should we pay the tax we owe by quarterly, or a lump sum at next tax time without a penalty? Business has to do quarterly tax estimates. In addition, the IRS rule is that if the tax withholding is less than 90% there is a penalty at tax time. But I have not yet been able to find any information about how IRS requires for Roth IRA tax payments. Can anyone tell me what I should do? Thanks.

Yan

The answer from a couple of different sources that I consulted was to treat the 1/4 in each year as comming in uniformly in each quarter.... 1/16 of the total conversion each quarter for the next three years.

One safe way that we often recommend is to use the IRS's "safe harbor" based on 100% of the prior year's tax if your AGI was less than $150,000... or if your 1998 Adjusted Gross Income (AGI) was more than $150,000, you would use 105% of 1998's tax. For instance if the total 1998 tax that you paid was $40,000, and your AGI was $175,000, you could make sure that you either withhold or pay estimates totalling $10,000 each quarter... and you are penalty free. If your 1999 income is substantially lower than 1998's, you may want to try for the 90% rule that you mentioned earlier. Remember if on 4/15/00, you owe less than $1,000, you are okay too... so you have some leeway in your projections, at least.