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I converted a significant portion of my Traditional IRA to

several Roth IRAs at the...
I converted a significant portion of my Traditional IRA to several Roth IRAs at the beginning of 2010. I plan to pay the conversion taxes over two years (2011 and 2012).
I do not expect an “estimated tax penalty” for 2010 since my tax payments exceeds 110% of my 2009 taxes. I am considering two options for paying the 2011 taxes: (1) I can pay the estimated taxes for 2011, or (2) I can keep the money invested and pay the taxes, interest, and penalty in 2012. The decision depends on the estimated range of interest and penalties that may be imposed and estimates of the stock market performance in 2011. Do you have any idea of the range of interest and penalties that may be imposed?
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2/2/2011
jgordosea
jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3,161
Experience: I've prepared all types of taxes since 1987.
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Greetings,

 

The penalty for an individual that does not make estimated tax payments during the year and pays the liability on or before the due date of the tax return is currently 3% annual rate for the first quarter of 2011.

 

Historically that rate has been between 4-8% from 2004 through 2010.

For a chart of rates by quarter see http://www.fairmark.com/reference/index.htm

(near the bottom of the page)

 

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

 

Since the federal short term rate is not likely to increase in 2011 much, if any, the underpayment rate will likely stay at 3% for most or all of 2011.

 

Please ask if you need clarification.

Best wishes.

 

 

 

jgordosea
jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3,161
Experience: I've prepared all types of taxes since 1987.
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