What if the tax withheld in the Tax Planner is too low after a Roth IRA conversion?


The Tax Planner may show a large under-withholding of tax during the current tax year if you have:

  • Converted a traditional IRA to a Roth IRA in the previous tax year
  • Prepared your taxes in TurboTax
  • Imported your TurboTax profile into Quicken

Your tax liability for the preceding tax year, the year of the IRA conversion, may have been substantially larger than other years. This is because traditional IRAs and Roth IRAs are taxed differently (see the note below). When you import your TurboTax data into Quicken, the Tax Planner may indicate that you haven't withheld enough because it calculates the current year's tax liability based on the previous year's unusually high tax liability, which was calculated in TurboTax and subsequently imported into Quicken.

Because you're liable for these taxes during the year you make the conversion, this larger-than-usual tax liability shouldn't apply to subsequent tax years. If you're certain that you already paid the taxes on the Roth IRA conversion, you can adjust the values in the Tax Planner by doing one of the following:

Notes

Contributions to traditional IRAs are tax deferred, but you must pay taxes when you make withdrawals. Contributions to Roth IRAs are taxable, but the earnings and withdrawals aren't taxed. When you convert from a traditional to a Roth IRA, you must pay taxes on all deductible contributions and earnings in the original traditional IRA. Also, to avoid being hit with penalties, you must pay these taxes with non-IRA money.

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