Convert $90,000 in October and Mail the IRS a Check for the Tax the Same Week, and an Underpayment Penalty Can Still Show Up

A taxpayer who converts $90,000 from a pre-tax IRA to a Roth IRA in October must calculate the tax and mail the IRS a check that same week, doing what most people would call the responsible thing. Through Roth conversion, pre-tax retirement money moves into a Roth account, and the converted amount counts as taxable income for that year. The bill is paid within days of the income being earned. An underpayment penalty can still appear on the return, and it comes down to how the IRS measures time.

Why a Same-Week Check Can Still Be Late

Federal income tax runs on a “pay as you go” system. The IRS expects tax to arrive in installments as income is earned during the year. For 2026, those installments are due April 15, 2026, June 15, 2026, September 15, 2026, and January 15, 2027.

Trouble starts with a default assumption. Under the regular installment method, the year’s tax is split into equal pieces, “as if your income was earned equally throughout the year.” So the tax on an October conversion is treated as though a quarter of it was owed in April, another quarter in June, and so on. Payments that weren’t made in those periods count as short, even though the income didn’t exist yet. Because the penalty is figured separately for each payment period, the taxpayer did nothing wrong, and the math still produces a penalty.

How Schedule AI Fixes the Timing

The remedy is the annualized income installment method, calculated on Schedule AI of Form 2210. It annualizes your tax at the end of each period. It uses the income, deductions, and other items from the start of the year through the end of that period. The periods build, so each one includes everything before it. An October conversion lands in the final period, reducing what was required in April, June, and September.

It’s an election made on the return itself, after the year ends. Publication 505 says taxpayers using the method must file Form 2210 with their return. The IRS figures the penalty by default. It sends a bill, so anyone who wants a lower number has to complete the form and attach it, according to Publication 17.

What the Extra Work Involves

Schedule AI asks for income, deductions, and credits computed separately for each period, which means rebuilding the year in sections from bank statements, brokerage records, and pay stubs. That’s real work, and it makes sense when the penalty at stake is meaningful. When it’s a few dollars, the effort usually isn’t worth it. Many preparers won’t run the schedule unless a client asks.

Where Annualizing Fits and Where It Doesn’t

The method fits when income really arrived late and unevenly: an autumn conversion, a property sale, a year-end bonus, or a business with seasonal income. It doesn’t help when income was steady and the taxpayer simply underpaid. Two other fixes exist, and we’ve covered each separately. Withholding from a retirement distribution is simpler for someone already taking one, and the prior-year safe harbor is simplest when planned at the start of the year.

Safe Harbor Versus After-the-Fact Repair

A safe harbor generally avoids the penalty when withholding and timely estimated payments total the lesser of 90% of the current year’s tax or 100% of the prior year’s tax. For taxpayers whose prior-year AGI exceeded $150,000 ($75,000 for married filing separately), the prior-year target rises to 110%.

It requires no reconstruction and is usually easier. The catch is that it still requires paying across all four periods, which someone who didn’t expect an autumn conversion probably didn’t do. Schedule AI is the tool you can use after the fact.

How the Penalty Is Calculated and Who Can Get It Waived

The IRS sets the penalty rate each quarter at the federal short-term rate plus 3 percentage points, and it runs on each missed installment separately. Short-term rates have risen lately, with the 3-month Treasury yield at 4.23% on October 8, 2026, though that yield is only a market proxy for the rate the IRS uses.

A rarely mentioned waiver also applies to this audience. The Form 2210 instructions allow relief for certain taxpayers. The IRS may waive all or part of the penalty if the taxpayer retired after age 62 or became disabled in 2025 or 2026, and the underpayment resulted from reasonable cause rather than willful neglect. New retirees doing their first conversions often fall squarely into that group.

State Returns Follow Separate Rules

States set their own estimated tax rules, due dates, and safe harbors. For instance, California uses its own underpayment form, FTB 5805F. A clean federal result doesn’t guarantee a clean state one, so the state return needs its own check.

Planning an Autumn Conversion in Order

The sequence matters more than the check size. Decide how the tax will be paid before converting, and pick one of the three approaches: withholding, the prior-year safe harbor or annualizing. If you plan to annualize, keep records by period as the year goes by, since rebuilding them in April is harder than capturing them in real time. (The broader question is which years to convert at all.) (Those quiet low-bracket years between retirement and RMDs are the subject of our free Roth window guide.)

For anyone who has already converted and paid promptly, the item to raise with a preparer is Form 2210, Schedule AI, the Annualized Income Installment Method. It’s the form that lets the return show income arriving in October and the check following within days.

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