Investing megathread extravaganza

[DaFace]

A place to talk about investing stuff.

[lewdog]

Originally Posted by Buehler445

20K would likely expose you to an underpayment penalty.

I don’t know what the fee structure looks like, but usually the most cash flow effective thing to do is make an estimate in January. The easiest thing to do is have the rolling company withhold some on the roll.

The simplest thing to do is pay the penalty. I don’t know what that looks like though. The ones the software calculated for me have been pretty little. But I know you’re a cheap ass so I’d probably make an estimate.

So this is Vanguard. Can they withhold some of the rolloever to pay the taxes? I just don't want to mess up some of the leg work here as I do my own taxes in Turbotax each year.

[Jenson71]

Originally Posted by lewdog

So this is Vanguard. Can they withhold some of the rolloever to pay the taxes? I just don't want to mess up some of the leg work here as I do my own taxes in Turbotax each year.

This Vanguard article indicates that while you can withhold some of the rollover, it would be better to pay an estimated tax out of a nonretirement source like cash savings in order to keep the Roth account at its maximum: https://investor.vanguard.com/invest...rom-an-advisor

So rather than withhold 10%, make a quarterly estimate payment of $2k at the time of the rollover.

[Buehler445]

Originally Posted by lewdog

So this is Vanguard. Can they withhold some of the rolloever to pay the taxes? I just don't want to mess up some of the leg work here as I do my own taxes in Turbotax each year.

They should. But I've never done it so I can't verify 100%, but it is a common thing.

[petegz28]

Originally Posted by lewdog

I'm thinking of doing a ROTH conversion in my wife's IRA account. It's roughly $20k so I'd have to pay taxes on it. Still seems worth it right and would I have to pay estimated taxes on that or can I just roll it into next year's taxes?

Man up! Roll this shit over and prepare to pay your taxes out of a taxable account when you file. WTF would you mess with filing an estimate when in the end you're going to pay whatever it is you have to pay and you have until then to pay it?

[Buehler445]

Originally Posted by Jenson71

This Vanguard article indicates that while you can withhold some of the rollover, it would be better to pay an estimated tax out of a nonretirement source like cash savings in order to keep the Roth account at its maximum: https://investor.vanguard.com/invest...rom-an-advisor

So rather than withhold 10%, make a quarterly estimate payment of $2k at the time of the rollover.

Ah, yeah, that makes some sense the IRS would care how the funding is done.

I think you just print a voucher and mail a check and there should be a place on TurboTax to enter payments.

The other option is to withhold an additional amount on your W-2.

[Buehler445]

Originally Posted by petegz28

Man up! Roll this shit over and prepare to pay your taxes out of a taxable account when you file. WTF would you mess with filing an estimate when in the end you're going to pay whatever it is you have to pay and you have until then to pay it?

Because you'll pay a penalty.

[petegz28]

Originally Posted by Buehler445

Because you'll pay a penalty.

Why would he pay a penalty?

[Buehler445]

Originally Posted by petegz28

Why would he pay a penalty?

Underpayment Penalties exist.

https://www.investopedia.com/terms/u...ets%20annually.

[petegz28]

Originally Posted by Buehler445

Underpayment Penalties exist.

https://www.investopedia.com/terms/u...ets%20annually.

If he does a rollover today he has 60 days to put it into a Roth and he has until April 15th, 2024 to pay the taxes on it.

What am I missing?

[Buehler445]

Originally Posted by petegz28

If he does a rollover today he has 60 days to put it into a Roth and he has until April 15th, 2024 to pay the taxes on it.

What am I missing?

It won't be a penalty for pulling out of a 401K. The income will be taxable with no withholding against it. Accordingly, he will potentially have exposure to an underpayment penalty.

[petegz28]

Originally Posted by Buehler445

It won't be a penalty for pulling out of a 401K. The income will be taxable with no withholding against it. Accordingly, he will potentially have exposure to an underpayment penalty.

Follow me here....

Rolls over to Roth

Claims on tax returns

Tax return says you now owe $X

Pays tax bill for $X


Paying estimated taxes is just that, estimated. At the end of the day you have until April 15th of whatever year to true up what you owe or don't owe.

So why not leave the money he is going to pay the tax bill with in an account earning 4% for the year and then pay when he has too?

No one is going to come knocking on his door for any tax payment until April 16th, 2024.

[Jenson71]

Originally Posted by petegz28

Follow me here....

Rolls over to Roth

Claims on tax returns

Tax return says you now owe $X

Pays tax bill for $X


Paying estimated taxes is just that, estimated. At the end of the day you have until April 15th of whatever year to true up what you owe or don't owe.

So why not leave the money he is going to pay the tax bill with in an account earning 4% for the year and then pay when he has too?

No one is going to come knocking on his door for any tax payment until April 16th, 2024.

Buehler's right -- if the tax return says you now owe $X, and you have not paid 90% (I think that's it, in general) of $X by end of that tax year, you owe an underpayment penalty. If we didn't have that rule, then most people wouldn't want to withhold anything from their paychecks and all our self-employed people would wait to the last second to pay their taxes, thus depriving the IRS of what's rightfully theirs for nearly a year. ( )

[petegz28]

Originally Posted by Jenson71

Buehler's right -- if the tax return says you now owe $X, and you have not paid 90% (I think that's it, in general) of $X by end of that tax year, you owe an underpayment penalty.

I am not sure I agree with that. My Wife does IRA administration, I will hit her up on that but as far as I know, you have 60 days to get the money rolled over and any tax you owe can get paid when you file your taxes. Just like any other time your tax return says you owe. Maybe it's this 90% thing you are talking about....

[Jenson71]

Originally Posted by petegz28

I am not sure I agree with that. My Wife does IRA administration, I will hit her up on that but as far as I know, you have 60 days to get the money rolled over and any tax you owe can get paid when you file your taxes. Just like any other time your tax return says you owe. Maybe it's this 90% thing you are talking about....

Yes, they are two separate concerns. One is, 'I don't legally need to withhold taxes from the converted IRA.' The second concern is, 'but maybe I want to do something to avoid the underpayment penalty focusing on ALL of my income at the end of my tax year, so let me throw in an estimated tax payment to be safe'

[ChiefsFan63]

Originally Posted by petegz28

I am not sure I agree with that. My Wife does IRA administration, I will hit her up on that but as far as I know, you have 60 days to get the money rolled over and any tax you owe can get paid when you file your taxes. Just like any other time your tax return says you owe. Maybe it's this 90% thing you are talking about....

One exemption to paying penalties is that if you have paid at least your tax liability from last year. If your total tax liability from last year was $5k, for instance, as long as you had paid $5k withholding this year there would be no penalty for under withholding. I use this exemption often if I have unexpected income or capital gains.