Roth Conversions, I-Bonds, and 2210

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
Bill M
Posts: 438
Joined: Sun Dec 30, 2012 10:10 pm

Roth Conversions, I-Bonds, and 2210

Post by Bill M »

I do a Roth Conversion each year to fill the lower tax brackets. And I deliberately overpay (with 4868) by $5K to get I-Bonds as the refund. This didn't work too well in 2015.

Problem is the AMT, and I couldn't know until November that it would apply. So the original estimate of Roth Conversion was too small (significantly), and I did an additional Roth Conversion in December (and paid the estimated taxes on the conversion amount). All seemed good except for the form 2210.

I've never been able to match the IRS figuring for the estimated tax penalty. Even with the CP30 notice, my numbers still come out wrong. It never mattered until I started using the tax refund to buy I-Bonds. For 2015 I calculated $300-350 for estimated tax penalty (put 350 on line 79), and included an extra $900 in the December 1040ES payment. It was more than enough to cover. But they calculated $364, cancelled the I-Bond purchase and refunded the extra $5+K. In re-reading the instructions for form 8888, anything beyond a simple math error cancels the I-Bond purchase.

Has anyone figured out a way to buy I-Bonds and still do a late-year Roth Conversion?
User avatar
FiveK
Posts: 10987
Joined: Sun Mar 16, 2014 2:43 pm

Re: Roth Conversions, I-Bonds, and 2210

Post by FiveK »

Bill M wrote:Has anyone figured out a way to buy I-Bonds and still do a late-year Roth Conversion?
Have enough withheld so you have no penalty and no need to pay estimated tax?
Daryl
Posts: 614
Joined: Thu May 22, 2008 9:34 am
Location: Malvern, PA (I like to sleep near my money!)

Re: Roth Conversions, I-Bonds, and 2210

Post by Daryl »

I feel your pain! My request to file and extension (Form 4868) / filing my taxes within a week triggered a CP23. The IRS ignored my Form 8888. In the end, I just got my money back and put it in an Ally savings account.
jatwell
Posts: 55
Joined: Tue Oct 09, 2012 9:32 pm

Re: Roth Conversions, I-Bonds, and 2210

Post by jatwell »

Just file an extension with a $5k overpayment before tax deadline. That way you don't have to overpay throughout the year and you can fully do your taxes and know exactly what you owe. As mentioned, wait a few weeks before officially filling after the extension.

There's a section here halfway down covering it:

http://thefinancebuff.com/backdoor-to-p ... bonds.html
Topic Author
Bill M
Posts: 438
Joined: Sun Dec 30, 2012 10:10 pm

Re: Roth Conversions, I-Bonds, and 2210

Post by Bill M »

jatwell wrote:Just file an extension with a $5k overpayment before tax deadline. That way you don't have to overpay throughout the year and you can fully do your taxes and know exactly what you owe. As mentioned, wait a few weeks before officially filling after the extension.

There's a section here halfway down covering it:

http://thefinancebuff.com/backdoor-to-p ... bonds.html
That is exactly the procedure I've followed. And it has always worked great. Until the second Roth Conversion was large and late in the year.

It seems that a math error on form 2210 isn't a "math error" but is rather a "refund offset," though I don't understand why. If I turn it into a deliberate math error (like adding extra interest due on the 2210) will that turn it into a "math error"?
MrDrinkingWater
Posts: 198
Joined: Tue Dec 23, 2014 11:30 am

Re: Roth Conversions, I-Bonds, and 2210

Post by MrDrinkingWater »

From your description of your Form 2210, it sounds like you had one or perhaps two quarters where you underpaid tax, even when using the annualizing income method.

It sounds like the numbers you moved from Line 25 of "Schedule AI - Annualized Income Installment Method" table that go back up into Line 18 of Part IV "Regular Method Section A Figure Your Underpayment" caused your Line 25 in Part IV Regular Method to show one or more quarters of underpayment.

I suppose you could double-check the numbers in your "Schedule AI - Annualized Income Installment Method" table. Maybe you have a mistake there and you can file a 1040X that reduces or completely removes the penalty?
Post Reply