December Roth Conversions May Trigger a January Tax Bill—and Penalties

Completing a Roth conversion by December 31 counts as that tax year’s income, but the IRS bills are due January 15, and underpayment penalties can accrue before you file. To avoid penalties, use safe-harbor rules (pay at least 90% of the current year’s tax or 110% of last year’s tax if your AGI was over $150,000), consider withholding from retirement distributions in December to cure earlier shortfalls, or file Form 2210 using the annualized income method. Note that you cannot reverse a conversion after Dec. 31, and state taxes may add their own penalties.