Question regarding tax withholding

[statsman]

Quote:

Originally Posted by Lakedog I do all withholding from fed pension as that is very simple and requires no extra effort to setup. Seems that withholding from pension or SS would be the easy way.

This is our first full year in retirement where we're doing pretty much this. We do have a small (less than $100k) inherited IRA where we take the RMD in December. If I find we're a little short of our withholding goal as we get toward the end of the year, we can always withhold from the RMD. Doing the latter is easier than constantly changing the withholding on our pension. Submit the request too late in the month for the pension and you don't see the withholding change until two monthly payments later.

[audreyh1]

Quote:

Originally Posted by ChrisC Well, yes, you could be good for the year in which you meet the safe harbor limits of 110% of tax liability for the prior year, but my point is with large conversions during that year this would make the safe harbor level for the succeeding tax year very difficult to meet by mere taxwithholding. Say you calculate your safe harbor level to be $40K in 2018 (but you did $200K in Roth conversions in 2018 so that your safe harbor level is now $85K for 2019). If you're on a Federal pension and the most you can reasonably withhold for 2019 is $60K, then you have to make estimated payments for the difference or withhold from the conversions.

Well, you just have to be very careful the next year if you choose to pay less.

Prior year’s taxes is not the only safe harbor. Payments 90% of current years taxes works too. If you can’t reasonably the predict the current year income, then you still have the annualized income method as an option.

Personally I switch to the annualized income method for estimated taxes after a high taxable income year, paying taxes based on income as it is received during the year. It means I have to file form 2210, but I don’t owe a penalty.

[ChrisC]

Quote:

Originally Posted by audreyh1 Well, you just have to be very careful the next year if you choose to pay less. Prior year’s taxes is not the only safe harbor. Payments 90% of current years taxes works too. If you can’t reasonably the predict the current year income, then you still have the annualized income method as an option. Personally I switch to the annualized income method for estimated taxes after a high taxable income year, paying taxes based on income as it is received during the year. It means I have to file form 2210, but I don’t owe a penalty.

I seek to be very careful as I do conversions, alternating large conversions in tax years, so on the years in which my conversions are not giant size one, I should have no problem with staying in safe harbor from pension withholdings.

This also helps with not spiking up IRMAA too high in given years.

Nonetheless, when I'm not within safe harbor from pension withholding, I plan to have the trustee of the traditional IRA or 401k withheld 10 or 20 percent from the rollover-conversion and within 60 days pay that withhelod amount to the Roth trustee. I've been advised that withholding from any source -- wages, pensions or distributions/rollovers from retirement accounts -- counts towards safe harbor.

I don't really want to mess with estimated or quarterly tax payments or form 2210.

[CardsFan]

Quote:

Originally Posted by ChrisC I don't really want to mess with estimated or quarterly tax payments or form 2210.

IMHO, withholding is the simplest way to pay my taxes (fed and state). We have no pensions, so I simply estimate taxes in December (after any Roth conversion) and take a draw from my IRA, withholding the proper amount.

When we start SS, we will have withholding taken that should cover all taxes, but I can still add at the end of the year, if I miscalculated.

When RMD's kick in, we will just withhold from them as well.

[Cobra9777]

We don't have any withholding. DW and I both have pensions, but we elected no withholding. We also have rental income and dividends from a taxable account. No SS or RMDs yet. Our taxes are "all over the map" since I retired. First couple years, I was still exercising employee stock options. DW decided to keep working a few more years. Then we both retired and sold some rental properties. Plus, we usually have a large Roth conversion in December and often tax loss harvesting opportunities. After 5 years of retirement, 2018 was the first somewhat "normal" year, but the tax law changes introduced some new variables for us like QBI and possible conversions into the 22% bracket.

For us, it's easier to manage all these moving pieces with quarterly estimates and the annualized income method. Plus, as I've posted before, I like to pay the IRS the least amount possible at the last possible moment, while carefully avoiding penalties for under-withholding. It's just a little game that keeps me amused.

[googily]

Do states that have income tax approach withholdings the same way the feds do, i.e., that a withholding from a year-end distribution can be looked upon as withholding across the entire year (in lieu of paying quarterly estimated taxes)? I can't quite figure out how to Google it

It looks like for my not-a-state (DC) I have to upgrade my inherited IRA at Vanguard to a brokerage account in order to have state taxes withheld. Odd.

[GalaxyBoy]

I am taking RMDs from an inherited IRA, as well as annual withdrawals from an inherited annuity (with 4 years left), so my strategy for these next few years is to have enough withheld from those distributions to cover me. DW also is taking SS and has a small pension, so we are withholding a bit from that as well. For lump-sum payments like the RMD, the amount withheld is deemed to have been taken over the entire year. Once the annuity is fully withdrawn, we'll be withholding more from SS or making estimated payments.

I'm not sure you can have VA state tax withheld from SS. In any case, SS benefits are not taxed in VA.

[audreyh1]

Quote:

Originally Posted by ChrisC I seek to be very careful as I do conversions, alternating large conversions in tax years, so on the years in which my conversions are not giant size one, I should have no problem with staying in safe harbor from pension withholdings. This also helps with not spiking up IRMAA too high in given years. Nonetheless, when I'm not within safe harbor from pension withholding, I plan to have the trustee of the traditional IRA or 401k withheld 10 or 20 percent from the rollover-conversion and within 60 days pay that withhelod amount to the Roth trustee. I've been advised that withholding from any source -- wages, pensions or distributions/rollovers from retirement accounts -- counts towards safe harbor. I don't really want to mess with estimated or quarterly tax payments or form 2210.

Since I have no opportunities at all for tax withholding, I do it all via estimated taxes. I’ve been doing it for a long time, so doing annualized income and filing form 2210 is no big deal for me. Quicken helps a great deal as it’s very easy to get a detailed report on my year to date income. I tend to have low income until Q4 when I receive 90% of my annual income. So I don’t tend to owe much until Jan 15 for Q4 when I owe a chunk.

[steelyman]

Fidelity provides options for both US and NC withholding percentages for an IRA withdrawal as well as suggested values. That was good for me as I’d greatly underpaid the state portion through 2018.

They have to have your current address to get it right.