From Fidelity: Taxes aren’t due until the tax deadline of the following year, so you may have more than 15 months to pay the taxes on your converted balances. (Note: If you pay estimated taxes, you may need to make some payments sooner.)
That’s what we did last year, but we also got a notice that because our taxes owed far exceeded what we paid in over the course of the year that we may have to pay a penalty. One of the reasons to do a conversion late is to avoid paying estimated taxes throughout the year, but I swear our guy told us to pay by either the 10th or the 15th, but I can’t remember now. I can call tomorrow.
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Estimated taxes for Q4 are due by Jan 15:
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If you are going to pay estimated taxes, they are due by 1/15. You can pay them later, you will just owe a little interest to the gov’t.
You may not need to pay estimated at all depending on your previous year’s tax bill and some other factors, only you and you tax guy can say for sure.
Assuming you know how much you took out, you don’t need to get the 1099 to file an estimated tax payment.
While it’s technically true that you may have up to 15 months to pay the taxes on an IRA withdrawal, the IRS expects you to pay as you go, like you do with taxes on employment income. So if you wait that long you will likely owe interest. It’s an expensive loan, I think the rate is around 8% right now.
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I didn’t realize that I didn’t need that form. Clearly, I need step-by-step instructions!
The 1099 is just for filing your tax return, which for most is due April 15, or later if you have an extension. But taxes are still due by 4/15. . Moreover, if you are under withheld for the year and not covered by the Safe Harbor rules, you could owe a few bucks of interest to Uncle Sam as noted above.
I would definitely consider either withdrawing from your 401K (if you would like to use the money) or converting some to a Roth to stay under whatever tax rate you select. The low income years are certainly a good time to do that (as long as you don’t pay punitive Medicare rates because of it). We are withdrawing every year to stay in the 24% tax bracket. The jump from 22-24% is no big deal, but the jump from 24-32% is pretty steep.
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Don’t forget about IRMAA and the NIIT.
I was referring to IRMAA when I specified avoiding punitive Medicare rates, and I don’t believe that the Net Investment Income Tax applies to qualified 401K distributions. At least, I sure hope not.
It does not apply to 401k distributions, as those are taxed at Income rates. But, the NIIT will apply to any interest/dividends/cap gains/rental profits that you might have. ( A lot of peeps hold dividend-paying stocks in taxable.)
The sequence of returns risk in early retirement concerns me a bit. I’ve read several things that suggest that the condition of the stock market in early retirement is a huge factor in the success/survival of the retirement portfolio. We are thinking about when to claim Social Security (we are 60/61). I’ll be working, health permitting, for 5 years until I’m 65 and DH, who’s one year older, wants to retire at 64 (he’ll be on my employer insurance). We ideally want to delay claiming SS until we’re 70 and rely on a qualified retirement account “bridge” to SS to meet our expenses. I also am planning on a contract buyout of 200% of my final salary spread over 2.5 years until I hit my full retirement age at 67; maybe I’ll collect SS then and DH can wait until 70 to claim. Both of us will have a decent amount of SS and waiting until 70 will yield substantial benefits. We also have quite a bit in qualified plans and don’t want to be slammed with RMDs at the age of 74. But if the stock market is down, we risk permanently damaging our portfolio by withdrawing in our late 60s. There is really nothing we can do except wait and see what happens.
So much of it is gaming longevity risk and health risk. DH’s parents died at 85 and 87, fairly suddenly. My mom died at 71 very suddenly, which is one reason why I don’t personally want to work until I’m 67 (my full retirement age). But my dad is 95 and hanging on in expensive assisted living. My maternal grandfather lived to 93 and my paternal grandmother lived to 94. I think we need to assume at least a 30 year need for income if we retire at 65.
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There is a worksheet somewhere that allows you to report how much money you received in each quarter. Notice the quarters aren’t four equal quarters either!
- April 15 for income earned January 1 to March 31
- June 15 for income earned April 1 to May 31
- September 15 for income earned June 1 to August 31
- January 15 of the following year for income earned September 1 to December 31
The first year I started filing my own taxes also happened to be a year with a significant payment received on December 28th. I failed to submit the worksheet to the state of Connecticut, so they hit me with a penalty until I was able to find the worksheet and submit it to have the penalty reversed. I don’t know how I overlooked the Connecticut form because I filed the federal equivalent with the same return.
I am just mentioning this in case you are filing your own taxes. If you do not fill out the form indicating that the conversion happened in December, the IRS could assume that it happened earlier in the year, and try to charge you interest.
As everyone else said, you have until January 15 to pay, assuming that your 2024 tax payments to date do not satisfy the safe harbor filing requirement. If your 2024 tax payments satisfied the safe harbor, you do not need to pay anything. It’s probably unlikely unless you reduced from full-time to part-time employment or something similar.
I believe you would need to have paid 110% of your 2023 tax obligation in 2024 for income over $75K for a single filer. The figure for incomes below 75K is 100%, I think… Might want to confirm that.
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NIIT only comes into play when your adjusted gross income exceeds a certain amount, $250k for married filing jointly.
So while IRA/401k distributions are not subject to NIIT, they could push you over the income threshold to where NIIT will apply to your investment income.
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You are referring to form 2210 and form 2210 schedule AI. These forms are a huge PITA to fill out manually, a tax program will make your life much easier.
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Yes, I used TurboTax, but was using it for the first time, and somehow omitted the CT version of the form. It was a PITA to get to the bottom of why I owed money to CT and not the Feds, and which form CT wanted, but I ended up not owing anything in the end.
I assume the OP would not make the same mistake and honestly do not know how I did since TT generated both the Fed & CT return. The December payout was most of the reported income for the year, so it was worth pursuing.
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Yes, I understand. But I was responding to a poster who was pondering IRA or 401K withdrawals, so in her case, the NIIT should not apply to those withdrawals. Though, as @notrichenough mentioned, if she was also getting investment income, it could be an issue, but she specified she was only getting a pension.
I encourage you to do close analysis about deferring both SS to age 70. The opensocialsecurity.com site requires minimal input (you do need the FRA SS amount from ssa.gov). It allows you to study the various scenarios.
In many cases it does make sense for ONE spouse to defer to age 70, often for the older spouse and/or higher wage earner. Of course it’s based on actuarial table averages, so if in your case you both have parents with longevity you may end up deciding to both wait.
If you have high taxable IRA balances, plot out the tax and IRMAA consequences of RMDs in addition to two deferred/big SS checks.
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have you run the math on Open Social Security? (Generally, the NPV favors the higher income waiting until 70, with the lower income taking earlier.
Make sure to click on the button top middle to include other info and to use the mortality table that best fits your health status.
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It’s the 15th. If you’ve had enough withheld to equal 90% of last year’s tax bill, then you don’t have to make an estimated payment. IIRC, there’s an income level where that 99% rule is different, but it’s really late and I need to get to bed.
H ran numbers last week and we have to send some in. Darned capital gains and divs. Thankful we have saved long enough that we get to worry about this.
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- You paid at least 90% of the tax shown on the return for the taxable year or 100% of the tax shown on the return for the prior year, whichever amount is less. If your adjusted gross income (AGI) for 2023 was more than $150,000 ($75,000 if your filing status for 2024 is married filing separately), substitute 110% for 100%.
Incomes of $75K single or $150K MFJ require 110% of last year’s tax payment, or 90% of this year’s taxes owed. I looked it up b/c I need to fine tune my Jan 15th payment.
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