To avoid the 10% penalty, do I have to satisfy the 5-year holding period for my Roth conversions if I’m over age 59 1/2? The IRS is not very clear when it comes to when you need to pay penalties on Roth IRA withdrawals, but I think I know the answer.
Like how diner coffee gets more bitter as the waitress tops off your cup with more coffee from the pot, so too the growth on your nondeductible assets increases your tax owed by decreasing the percent post-tax assets in your cup.
We know how federal rules require you to either have tax withheld or make estimated payments of tax that will be due, but it is easy to forget that states have their own revenue departments and their own rules.
The IRS does not do a good job of helping people understand capital gains taxes. They provide a worksheet to help you calculate it, but it has so many steps that it’s nearly impossible to figure out what’s going on.