Convert $100,000 to a Roth in November and Skip the Jan. 15 Payment. If Your Withholding Already Matches Last Year’s Tax, the Penalty Is $0. If It Doesn’t, It’s About $1,000
A November Roth conversion drops a five-figure tax bill into your lap, but the IRS offers a penalty loophole that has nothing to do with how much you owe this year and everything to do with a single line on…
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If you undergo a $100,000 Roth conversion in November, it adds a five-figure bill to a 2026 tax return. The IRS lists the fourth-quarter 2026 estimated payment as due January 15, 2027. The penalty for skipping it depends on one comparison: total federal withholding for 2026 against the total tax shown on the 2025 return. If withholding clears that bar, the penalty is $0. If it falls short by roughly the full conversion tax, the cost lands near $1,000.
Why Last Year’s Return Sets a Zero Penalty
The IRS can waive the underpayment penalty. This applies when a taxpayer paid at least 90% of the tax shown on the return for the taxable year or 100% of the tax shown on the return for the prior year, whichever amount is less. The second test looks backward and ignores extra income this year, so a large November conversion leaves it untouched, and a household whose paychecks withhold an amount equal to its 2025 tax can owe a large balance in April and still pay no penalty.
Higher earners face a stricter version. If AGI for 2025 was more than $150,000, the taxpayer must use 110% instead of 100%. The threshold uses 2025 income, so a 2026 conversion does not raise the bar this year, but it may push 2026 AGI above $150,000 and trigger the 110% rule for 2027.
Withholding is treated as if it were paid evenly throughout the year, even if the transaction happens once, in December. A household short in November has options. It can raise withholding on its last few paychecks with a new W-4, or withhold from an IRA distribution, and the IRS counts those dollars as if paid since January.
Where the $1,000 Figure Comes From
When withholding misses the prior-year mark, the penalty works like interest on each quarterly installment that came up short. For the fourth quarter of 2026, the IRS rate on individual underpayments is 7% per year, compounded daily. Taxed at 22%, the conversion produces $22,000 of tax, and at 24% it produces $24,000.
The standard penalty calculation assumes income arrived evenly across the year. The IRS treats the conversion tax as owed in four equal pieces due April 15, June 15, September 15, 2026, and January 15, 2027. The April piece builds up a full year of interest, even though the money moved seven months later.
At 24%, the four installments, each charged interest from its due date until the April filing deadline, total about $1,117. At 22%, it comes to roughly $1,024. The IRS resets the rate every quarter; it fell to 6% for the second quarter of 2026 before returning to 7%.
Using Form 2210 to Shrink the Bill
Form 2210 lets you match the penalty to when the income actually arrived. The IRS notes the penalty can be reduced or eliminated when figured using the annualized income installment method, which is reported on Schedule AI. Under this method, most of the conversion tax falls into the final installment, so skipping the January payment leaves only about three months of interest. On $24,000, that works out to about $414. The method requires reporting income figures quarter by quarter.
What to Check Before December 31
These checks determine whether a conversion costs a penalty or only tax.
- Find the 2025 total tax line. That figure, or 110% of it if 2025 AGI topped $150,000, is the withholding target.
- Add year-to-date withholding to what remaining paychecks will withhold. If the total meets the target, you can skip the January payment with no penalty, and pay the conversion tax in April.
- Close any gap through withholding instead of an estimated payment. A larger W-4 withholding in December counts as evenly paid throughout the year. Withholding taken from the converted amount itself counts as a distribution, and savers under age 59½ may owe the early-withdrawal penalty on that portion.
The underpayment penalty is triggered by a withholding shortfall measured against last year’s return. A household that meets the prior-year mark owes $0 in penalties and settles the conversion tax in April. One that misses by the full conversion tax pays about $1,000 under the standard method, or about $400 with Schedule AI. The larger question of when to convert at all, especially during the low-tax years following a last paycheck but before required minimum distributions begin, is the subject of a free guide we put together on the Roth window.
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David Beren has been a Flywheel Publishing contributor since 2022. Writing for 24/7 Wall St. since 2023, David loves to write about topics of all shapes and sizes. As a technology expert, David focuses heavily on consumer electronics brands, automobiles, and general technology. He has previously written for LifeWire, formerly About.com. As a part-time freelance writer, David’s “day job” has been working on and leading social media for multiple Fortune 100 brands. David loves the flexibility of this field and its ability to reach customers exactly where they like to spend their time. Additionally, David previously published his own blog, TmoNews.com, which reached 3 million readers in its first year. In addition to freelance and social media work, David loves to spend time with his family and children and relive the glory days of video game consoles by playing any retro game console he can get his hands on.
