tax penalty first year

[Guest Carl]

If I convert an IRA to a Roth will I have to pay a penalty since my tax due will be so great?

[Guest jane]

I haven't seen this addressed in any of the imformation I have read. However, you can get around paying a penalty if you make an estimated tax payment for the last quarter of 1998. This is due by January 15, 1999 (and I mean due. The government has to receive the payment by Jan. 15.) If you have had enough taxes withheld to cover what your other income is, then get an estimated tax package from the IRS and your state now, calculate what the tax will be for the conversion, and send that as an estimated payment. Depending on when you made the conversion, you might still have a penalty, but it will be a lot lower.

[Kathy]

I may be way off base here so please someone correct me if I'm wrong but I think you can get out of the penalty for being underwitheld if you had enough tax withheld this year to equal or exceed what you owed in taxes last year. I think the logic behind the provision is that people may have unusual and unplanned extra income occasionally and shouldn't be penalized for it. However, as I said - Tax class was many many moons ago so someone please confirm for me.

Thanks!

[Guest Joan]

When 25% of the value of my conversion to a Roth is treated as taxable incomefor each of the next fours years,, does that also mean that if it bumps me to a high tax bracket, I pay a higher tax on the Roth part and my regular income?

[kocak]

There was an article in the Wall Street Journal in the last week addressing the tax withholding/penalty issue specifically because of Roth IRA conversions. Sorry I can't remember the day but maybe someone else out there still has it?