Withhold Taxes From Pension Payments?

[Dog]

Happy New Year!

This will be a great year as DH will retire in May! He just received the package of paperwork he needs to fill out and submit to retire from the post office (letter carrier for 30 years - FERS)
We need to decide if he should have fed taxes withheld from his payments? My first instinct is to say yes, but thought I would check for feedback and advice from experienced retirees.

Thanks all!


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[steelyman]

I have taxes withheld in order to avoid making estimated payments throughout the year. That's just a personal preference.

 

[RE2Boys]

Depends on your tax situation. If you would otherwise need to pay quarterly estimated taxes, it can be easier to just have monthly withholding.
Once his pension is established, he can always go to the OPM website and change his withholding at any time.

 

[Dash man]

I have taxes withheld from my pension. Haven't had to worry about quarterly payments that way.


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[ExFlyBoy5]

Yes. I didn't want to mess with quarterly payments, either. I did a guesstimate to make sure I don't have to write a check on April 15th for more than $1000 (triggering an underpayment penalty) however.

 

[Fedup]

I marked no, many years now, I have been slightly underpaying and it's no big deal. I paid at most less than $50 penalty per year.


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[Amethyst]

Although we file "married, joint," our pension withholding is set at "single" to help cover taxes on investment income.

As others have noted, calculating and paying quarterly estimated taxes is an alternative strategy.

 

[Accidental Retiree]

I have taxes withheld from my pension. Haven't had to worry about quarterly payments that way.


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+1


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[Running_Man]

I use the pension withholding to avoid quarterly estimates as well,

 

[REWahoo]

My first instinct is to say yes...

Your first instinct is usually the most accurate and that's definitely the case here.

 

[Lakedog]

I have taxes withheld as it is way less trouble than quarterly estimates - easy to adjust as needed via OPM website.

 

[Dog]

Thanks everyone. I'll spend some time to figure out how much to have withheld. I appreciate the quick feedback!


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[Walt34]

I have the withholding done from the pension as well. For federal only though, since they only do it for the state of MD and we don't live there anymore.

 

[dtbach]

+1


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++1

 

[N02L84ER]

I have no pensions, but I would do the automatic withholding to avoid having to make estimated payments.

 

[Neill]

If you like to optimize you can add your income to a spreadsheet as the year goes on and then pay quarterly only if you have to. You can play the safe harbor rules to keep more of your money by giving it to the government later.
If you can change your withholding during the year you get the best of both worlds. Withholding is averaged across the whole year but quarterly tax payments have to be enough each quarter. So you can boost withholding at year end and it looks like you payed that in through the year. Here I am assuming you can change it like you could payroll.

 

[Cobra9777]

I have a pension, but don't have any taxes withheld. We have other income streams like rentals, so we have to do estimates and quarterly payments anyway. Also, our tax situation has yet to stabilize since ER due to timing of stock option exercises and other complications. So for me, I like to control the big picture more tightly and hold the cash as long as allowed.

 

[jfn111]

I'm probably the oddball but I have Federal withholding taken out of my pension and I file quarterly payments.
My pension is predictable but my income as a Realtor isn't so I handle that income separately.

 

[donheff]

I have all of my and DW's federal and state taxes withheld from my federal pension. Until she is 75, DW gets a $30K quasi-retirement income from her law firm that is taxed as work income requiring self employment SS taxes. It is easier to take it all out of my pension than filing quarterlies. Works fine.

 

[RockyMtn]

Just opted to begin taking my pension beginning Jan 1 of this year. Will have state and fed taken out of the checks.

 

[Brat]

I have a deduction for Fed taxes from my CSRS retirement check then I make a mock tax return and adjust state and federal withholding from our minimum required distributions. I hate quarterly paying quarterly because it is so easy to overlook one (been there, done that, don't like the penalties).

The other issue to consider is the possibility (probability) that one of you will lose your 'edge'. If the tax withholding is taken from your pension in line with the IRS schedule it will be self-adjusting.