Preparing for Taxes on Roth Conversion

Consider? Yes. Actually make the payment? We can't say without knowing numbers.

Ok, Bill, let's assume (!) that before this conversion, you did claim 2 exemptions, but went to zero knowing this was coming. And you are in the

25% bracket.

One exemption is $3700, two, $7400. So if you were dead on last year, but dropped the exemptions, you'll have a taxable $2600 (extra) with a tax due of $650.

If my assumptions are wrong and for whatever reason, your W4 reflected zero anyway, you're closer to a $2500 tax due.

If your tax paid by year end is more than your total tax bill last year or at least 90% of your bill this year (I believe these are the two factors) then you'll have no penalty for underpayment.

To D's point, is this the only variable? i.e. do you have cap gains, or other income that you'll owe tax on? The simplest answer is that you'll owe $10k * your marginal rate, along with whatever phantom effects there are due to phaseouts of credits, ATM, Social Security taxability, etc.

Not enough info to tell, but -

See what tax bracket you're in for 2011. Multiply that times the $10K in income - don't forget to factor in any state taxes. This is the tax that will be due on the conversion. Now compare that number to the amount of your refund from last year. If your refund from last year was large enough to cover the tax due this year AND NOTHING else has changed, you should be OK.

Gene E. Utterback, EA, RFC, ABA

Thanks for the input, everyone. I decided to just work through my

2011 tax return (extrapolating wages, withholding, etc. for the rest of the year). It looks like we will be about $2k short on our withholding. But that's less than 10% of our total tax liability, so we'll be fine.

Thanks again.

--Bill