Hi all!
I need some review / confirmation on how to pay Fed and NJ taxes for TY 2024. All my 2024 income will come from tIRA withdrawals. I'll also do a Roth conversion. I've reviewed many BH posts on estimated taxes, safe harbor, and how BH'rs pay themselves in retirement.
In 2023 I lived off taxable account, and went just a few dollars into 22% bracket. So 2023 taxes were relatively low compared to 2024, where I'll live off tIRA withdrawals and do a Roth Conversion. In 2024 I'm looking to fill up the 22% bracket, but not go over.
NJ, Age 59.5, filing single. Retired, no earned income, pension, or SS in 2024.
2023 Federal total tax (1040 line 24): $1,075
2023 NJ total tax (Form NJ-1040 Line 54): $1,258
Question 1. The above 2023 numbers are my "100% of previous years tax" safe harbors for 2024, correct? Meaning that if I withhold at least these amounts for Fed and NJ from my 2024 tIRA withdrawals, I can pay the remainder of 2024 taxes due when I file my 2024 returns in early 2025, and not incur underpayment penalty, right?
In 2024 I'll withdraw $103k in total from tIRA. $20k of that will be converted to Roth in Q1 2024. No taxes will be withheld from the conversion.
Question 2. I intend to pay estimated taxes on the conversion from my taxable account, using 4 equal quarterly payments each to Fed and NJ. So I get the full 20k into the Roth. How to calculate the correct amount of Fed and NJ tax estimated tax to pay on the Roth conversion?
I'm using Turbo Tax "what if" and Estimated tax worksheets, but not sure how to come up with the estimated tax on the Roth conversion, especially for NJ. For Federal, I did TT "what if" both with and without the 20k additional tIRA withdrawal, noted the additional amount of tax with the additional 20k, and then told TT to withhold everything EXCEPT that additional amount of tax, which it then split into the 4 equal estimated payments. For example, using "what if", if my tax was $11k without the Roth conversion, and $15k with the conversion, I told TT that I was going to withhold $11k, so it took the remaining $4k and split into 4 equal estimated pymts of $1k each. But I'm not sure this is accurate / correct approach. And there is no "what if" for NJ in TT as far as I can see. Also it gets complicated because I really don't plan on withholding $11k if my understanding of safe harbor in Question 1 is correct ...
My understanding is the safe harbor does not cover the Roth Conversion, which is why I'm doing the estimated taxes for the Roth Conversion. If my understanding is wrong please advise!
If any more info is needed, please let me know and I'll add to the post
Thanks!
I need some review / confirmation on how to pay Fed and NJ taxes for TY 2024. All my 2024 income will come from tIRA withdrawals. I'll also do a Roth conversion. I've reviewed many BH posts on estimated taxes, safe harbor, and how BH'rs pay themselves in retirement.
In 2023 I lived off taxable account, and went just a few dollars into 22% bracket. So 2023 taxes were relatively low compared to 2024, where I'll live off tIRA withdrawals and do a Roth Conversion. In 2024 I'm looking to fill up the 22% bracket, but not go over.
NJ, Age 59.5, filing single. Retired, no earned income, pension, or SS in 2024.
2023 Federal total tax (1040 line 24): $1,075
2023 NJ total tax (Form NJ-1040 Line 54): $1,258
Question 1. The above 2023 numbers are my "100% of previous years tax" safe harbors for 2024, correct? Meaning that if I withhold at least these amounts for Fed and NJ from my 2024 tIRA withdrawals, I can pay the remainder of 2024 taxes due when I file my 2024 returns in early 2025, and not incur underpayment penalty, right?
In 2024 I'll withdraw $103k in total from tIRA. $20k of that will be converted to Roth in Q1 2024. No taxes will be withheld from the conversion.
Question 2. I intend to pay estimated taxes on the conversion from my taxable account, using 4 equal quarterly payments each to Fed and NJ. So I get the full 20k into the Roth. How to calculate the correct amount of Fed and NJ tax estimated tax to pay on the Roth conversion?
I'm using Turbo Tax "what if" and Estimated tax worksheets, but not sure how to come up with the estimated tax on the Roth conversion, especially for NJ. For Federal, I did TT "what if" both with and without the 20k additional tIRA withdrawal, noted the additional amount of tax with the additional 20k, and then told TT to withhold everything EXCEPT that additional amount of tax, which it then split into the 4 equal estimated payments. For example, using "what if", if my tax was $11k without the Roth conversion, and $15k with the conversion, I told TT that I was going to withhold $11k, so it took the remaining $4k and split into 4 equal estimated pymts of $1k each. But I'm not sure this is accurate / correct approach. And there is no "what if" for NJ in TT as far as I can see. Also it gets complicated because I really don't plan on withholding $11k if my understanding of safe harbor in Question 1 is correct ...
My understanding is the safe harbor does not cover the Roth Conversion, which is why I'm doing the estimated taxes for the Roth Conversion. If my understanding is wrong please advise!
If any more info is needed, please let me know and I'll add to the post
Thanks!
Statistics: Posted by fatima526 — Thu Feb 22, 2024 7:13 pm — Replies 0 — Views 132