Explore Roth IRA conversion opportunities, avoid costly estimated tax penalties with strategic withholding, and use QCDs to offset taxable RMDs:
- If you’ve ever wondered how to get more money into a Roth IRA despite income limits, the backdoor Roth IRA conversion strategy may have caught your attention
- If you’re making quarterly estimated tax payments, missing a deadline can be costly
- If you have one or more traditional IRAs and are age 73 or older, you’re probably familiar with three of the most dreaded letters in the tax world: RMD, short for required minimum distribution
Backdoor Roth IRA Conversions: Smart Move or Hidden Tax Trap?
If you’ve ever wondered how to get more money into a Roth IRA despite income limits, the backdoor Roth IRA conversion strategy may have caught your attention. It’s a smart planning tool for high-income earners—but only when used with care.
First, a quick refresher: Roth IRAs offer two powerful benefits—tax-free withdrawals in retirement (if you meet certain conditions) and no required minimum distributions during your lifetime. These features make Roth IRAs excellent for retirement income planning and for long-term wealth transfer to heirs.
Unfortunately, direct contributions to a Roth IRA are phased out at higher income levels—$236,000 to $246,000 for joint filers and $150,000 to $165,000 for single filers in 2025. That’s where the backdoor Roth comes in.
Here’s how it works: You make a non-deductible contribution to a traditional IRA, then convert that amount into a Roth IRA. If you have no other traditional IRAs, this strategy can be a clean, tax-free move.
However—and this is key—if you have other traditional IRAs (including a SEP or SIMPLE IRA), the IRS looks at all of them when determining the taxable portion of your conversion. This can result in unexpected taxable income on the conversion. In other words, what appears to be a simple “tax-free” conversion could surprise you with a tax bill if you’re not careful.
Before you make a move, it’s essential to review your entire IRA picture. In some cases, consolidating or converting other IRAs first can help set the stage for more tax-efficient backdoor conversions down the line.
Bottom line: A backdoor Roth IRA conversion can be a powerful tool, but it’s not a one-size-fits-all solution.
Beat the Estimated Tax Penalty with Strategic Withholding
If you’re making quarterly estimated tax payments, missing a deadline can be costly. The IRS currently charges a 7% penalty for underpayments—and since penalties aren’t deductible, the real cost can feel closer to 11%.
But here’s good news: strategic withholding can often help you avoid or erase those penalties—even late in the year.
Here’s why: while estimated tax payments are due on set dates (April 15, June 16, September 15, and January 15), withholding is treated differently. The IRS considers tax withheld from W-2 wages or IRA distributions as if paid evenly across all four quarters—or on the actual date withheld, if you so choose.
This means that if you’re short on estimated payments for the year, you may still have options:
- Have your S or C corporation pay you a year-end bonus and withhold additional taxes (though be mindful of added payroll taxes).
- Adjust withholding from a W-2 job, and document the timing for quarterly allocation or direct identification.
- Use an IRA “rollover and replace” strategy: take a distribution, withhold 100% for taxes, then redeposit the funds within 60 days to avoid tax on the withdrawal.
Each of the methods can help you meet IRS safe harbor rules and avoid penalties—often with more flexibility than standard estimated tax payments.
Beat the Taxman: Use the Tax Code Created QCD to Kill Your RMD
If you have one or more traditional IRAs and are age 73 or older, you’re probably familiar with three of the most dreaded letters in the tax world: RMD, short for required minimum distribution.
Starting the year you turn 73, the IRS requires you to withdraw a certain amount from your traditional IRAs annually. This amount is based on your age and increases as you get older.
RMDs are taxable income, which is precisely why many retirees dread them. But if you’re charitably inclined, there’s a powerful way to meet your RMD requirement without increasing your taxable income: the qualified charitable distribution, or QCD.
With a QCD, you direct money from your IRA straight to a qualified charity. That amount counts toward your RMD for the year—but it doesn’t count as taxable income to you. Even better, you can use a QCD whether or not you itemize deductions, so you can still benefit from charitable giving on your tax return.
A QCD can help you:
- satisfy all or part of your RMD for the year;
- support the charities you care about;
- avoid reporting the RMD as taxable income; and
- reduce the risk of being pushed into a higher tax bracket.
While RMDs don’t start until age 73, you can make QCDs when you turn 70 1/2.
The annual QCD limit is generous: up to $108,000 per person per year. For married couples filing jointly, each spouse can make a QCD of up to $108,000 from their own IRA, for a combined total of $216,000 for 2025.
The QCD must go to a Section 501(c)(3) charity—such as a church, school, or other non-profit organization. You cannot make QCDs to donor-advised funds or private foundations.
Your best choice is to have your IRA trustee transfer the QCD directly from your IRA to the charity. Also, make sure you get a written acknowledgment from the charity for your records.
Make the QCD first if you plan to take multiple withdrawals from your IRA during the year. The IRS treats your first withdrawal as your RMD, so taking the QCD first ensures it counts toward your RMD.
And most important, don’t forget to let your tax preparer know you made a QCD. They need to report it correctly on your tax return.
Contact your tax and financial advisors to determine the best moves for your situation.