Facing a penalty for underpayment of estimated taxes and the increased withholding option is unavailable or won’t sufficiently address the problem? Take an eligible rollover distribution from a qualified retirement plan before the end of 2010. Income tax will be withheld from the distribution and will be applied toward the taxes owed for 2010. You can then timely roll over the gross amount of the distribution, as increased by the amount of withheld tax, to a traditional IRA. No part of the distribution will be includible in income for 2010, but the withheld tax will be applied pro rata over the full 2010 tax year to reduce previous underpayments of estimated tax. Contact your CPA with questions about this tax saving opportunity.
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