Key Takeaways
- A married couple with $150,000 of taxable income who convert $100,000 to a Roth in 2026 would owe $22,772 more in federal income tax under the IRS’s 2026 brackets.
- The IRS wants that tax paid during the year, so leaving it all until April can bring an underpayment penalty on top of the bill.
- Couples are generally safe if withholding and estimated payments cover at least 90% of this year’s tax or 100% of last year’s, rising to 110% if last year’s adjusted gross income was over $150,000.
- The last estimated payment for 2026 is due Jan. 15, 2027, and the IRS’s underpayment rate stands at 7% for the year’s final quarter.
A caller on Jill on Money with Jill Schlesinger knows what a Roth conversion can do to a tax bill. She and her husband are both 58. They earn about $155,000 together, plus roughly $5,000 each from side work. A few years ago, a financial planner pushed them to convert. “We did $100,000,” she told Schlesinger on the Oct. 29 episode.
Schlesinger figured the conversion pushed them from the 22% bracket into the 24% one.
The couple knew a tax bill was coming. The penalty for paying it late caught them off guard: “there’s an issue of if you don’t make estimated tax payments or if you don’t pre-overpay, you get whacked.”
Ouch.
Now, this couple’s case happened with a past year’s tax brackets, which isn’t all that helpful to anyone looking to avoid the same mistake today, so let’s see what a $100,000 conversion costs under 2026’s rules, take a hypothetical similar married couple, also 58, with $150,000 of taxable income before converting, and work the math.
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$100,000 lands in two brackets
The conversion adds $100,000 to the couple’s taxable income, taking it from $150,000 to $250,000. The IRS’s 2026 brackets for married couples filing jointly tax income over $100,800 at 22% and income over $211,400 at 24%. The next rate, 32%, doesn’t start until $403,550, so the whole conversion stays inside those two brackets:
- The first $61,400 fills the rest of the 22% bracket, from $150,000 to $211,400: $13,508 of tax.
- The other $38,600 is taxed at 24%, from $211,400 to $250,000: $9,264.
- Together, that’s $22,772 of extra federal income tax.
That works out to just under 23 cents on every dollar converted.
The IRS also wants that money well before April.
The IRS collects during the year
Federal tax is due as the income comes in. For 2026, estimated payments are due April 15, June 15 and Sept. 15, 2026, and Jan. 15, 2027. A couple who converts and waits to settle up when they file can owe an underpayment penalty on top of the $22,772.
Form 2210 figures that penalty separately for each due date. The IRS applies its underpayment rate to each shortfall for the number of days it stays unpaid. That rate was 7% a year in the first quarter of 2026, 6% from April 1, and 7% again from July 1 and Oct. 1.
The IRS’s Form 2210 instructions say a taxpayer can owe the penalty for an earlier due date even after paying enough later, and even if they’re due a refund. Payments also go to the earliest shortfall first, whatever period they’re marked for.
Plenty of converters are already covered
The penalty isn’t automatic. The IRS says most taxpayers avoid it in one of two ways: Either by owing less than $1,000 after withholding and refundable credits, or by having withholding and estimated payments that cover at least 90% of this year’s tax or 100% of last year’s, whichever is smaller. The last-year test rises to 110% for anyone whose 2025 adjusted gross income was over $150,000.
Our couple’s $22,772 balance blows past the $1,000 test on its own. The prior-year test is the one that can save them. If what they had withheld and paid during 2026 covers 100% of their 2025 tax, or 110% if their 2025 AGI topped $150,000, they generally won’t owe the penalty, even with the whole conversion bill left for April.
A couple whose withholding already runs at or above last year’s tax may need to do nothing beyond paying the balance when they file. A couple who falls short of that line is exposed.
Jan. 15 is the last scheduled payment
A couple who converted this fall still has a few federal choices before the year’s last payment date:
- Check withholding and estimated payments so far against the 90% and 100%/110% lines.
- Send an estimated payment by Jan. 15, 2027. That covers the final installment. A shortfall on an earlier date can still draw a penalty for the days it went unpaid.
- Use the annualized income installment method on Form 2210’s Schedule AI, which the IRS says may reduce or eliminate the penalty. A taxpayer who uses it for one due date has to use it for all of them.
For future conversions, Mark, who joined Schlesinger on the episode, offered a timing fix: “the way to avoid the penalty is do the conversion at the very end of the year.” Schlesinger agreed.
The penalty is the avoidable part
At the end of the day…$22,772 is the price of the conversion, and a couple can plan for it. The penalty on top of it can be avoided with withholding or estimated payments that clear the safe harbor, and Jan. 15 is the last scheduled date to make that happen for 2026.
Next year’s math starts from a higher base, though. A couple who converts again in 2027 faces a bigger prior-year target, because that test is measured against 2026’s tax, conversion included. The IRS also resets its underpayment rate every quarter, so 2027’s brackets will show us where the next $100,000 lands.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
