P-2210 News & Analysis

IRS Roth Conversion Penalty: Form 2210 Eliminates Underpayment Charges

The IRS penalizes late-year Roth conversions, charging underpayment penalties by spreading income evenly across quarters. Taxpayers who convert a traditional IRA to a Roth in December may face penalties based on income not earned until later. However, Form 2210 Schedule AI allows taxpayers to recalculate their tax owed based on actual income received per period, thereby avoiding these penalties. For retirees, meeting the prior-year safe harbor requires paying 100% of last year's tax, or 110% if AGI exceeded $150,000, which can significantly impact tax liabilities.