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.
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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.
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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. ( :-) )
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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....
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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'
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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.
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Dude.

It has nothing to do with the IRA. The IRA Conversion just creates income. Forget the IRA.

If you're single, but you mark down you're married and have 400 kids on your W-4 and you don't withhold enough, there will be an underpayment penalty.

I did a return that had a guy that got a bunch of ESPP stock that he sold, with the runup he had a pretty big gain. Him and his Wife both had W-2 earnings, with withholdings, but he was underwithheld because the stock sale had no withholdings. So he had an underpayment penalty.

But if you have a bunch of income that doesn't have withholding against it, you either need to make an estimate or pay an underpayment tax.

Seriously. Read the link I posted.
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So if I do this conversion but increase my withholdings for the rest of the year, can I avoid paying estimated taxes that way?
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Yep.
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I think they changed the rules back in 2017 going FROM a Roth IRA.

Better check with accountant. :-)
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Should.
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Best investment all year was selling 90 round bales at $100 a pop. :-)
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Buehler is my accountant, which is why I post all this stuff on CP.
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5 year lookback on the S&P 500 on a weekly chart. The drop from the highs of early 2022 don't look so bad if you have made sure to invest steadily over time. It's important to not lose sight. And every time you get a raise, make sure to increase your contribution rate. I am "younger" so my favorite index funds to invest in are VOO and VXF.


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I'm officially annoyed. Some company came in and stole a good stock from me.

ATCO (don't bother looking it up because it's gone now) is a shipping company. It was a great stock. I was getting decent returns and a good dividend that added up to notable low-key success. It was one of my largest holdings and was definitely a keeper.

I was doing a checkup and realized that it was no longer in my portfolio. Some stupid company bought them out and the board of directors voted for it, and apparently that gave the new company the right to go into my personal account and sell the shares.

I understand the mechanics - as a shareholder I could have voted against the purchase with my 0.0000001 percent holdings of the company. The big fish voted for it and therefore my stock is gone. But man, something seems really wrong about a company that I've never heard of being able to order my personal account to sell the stock without my permission or knowledge. If you look at it logically, they said, "we think this stock is worth more than the market, so let's take it from all of the small shareholders so we can make the money on it instead of them".

It reeks of the big guys ripping off the retail investors.
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