Estimated Tax Returns and IRA Distributions

[eytonxav]

I am about to start the decumulation phase and will be drawing from my IRA accounts for living expenses. To this end, I am wondering if it is required to file estimated Federal quarterly tax returns if my financial institution will be withholding tax from my distributions at a level commensurate with my effective tax rate? I hope not, as this doesn't seem any different than your employer withholding taxes.

[JoeWras]

DFW: do you have other income from investments or bank accounts? You may have to do estimated for that portion.

[eytonxav]

Quote:

Originally Posted by JoeWras DFW: do you have other income from investments or bank accounts? You may have to do estimated for that portion.

Not really, my after tax $s are negligible at today interest rates and I have no after tax stocks/bonds.

[Animorph]

As long as your withholding covers your tax bill to within the penalty limits you are in good shape. If you are withholding at your marginal rate and have no additional taxable transactions, you may find you have a large refund. Your average tax rate will be smaller than your marginal rate since it includes some money taxed within lower tax brackets or excluded by exemptions and deductions.

[pb4uski]

Quote:

Originally Posted by Animorph As long as your withholding covers your tax bill to within the penalty limits you are in good shape. If you are withholding at your marginal rate and have no additional taxable transactions, you may find you have a large refund. Your average tax rate will be smaller than your marginal rate since it includes some money taxed within lower tax brackets or excluded by exemptions and deductions.

+1 One thing you could do is do an estimated tax return with your income, including IRA withdrawals and expected withholding for 2013 and see if the tax due is close to zero.

[eytonxav]

Quote:

Originally Posted by pb4uski +1 One thing you could do is do an estimated tax return with your income, including IRA withdrawals and expected withholding for 2013 and see if the tax due is close to zero.

I had used turbo tax for 2012 with 15% witholding based on my 2013 income/distribution and came out with a refund. I just wasn't 100% sure about these quarterly estimated returns and whether one has do them anyway.

Thanks everyone!

[scrabbler1]

Quote:

Originally Posted by DFW_M5 I am about to start the decumulation phase and will be drawing from my IRA accounts for living expenses. To this end, I am wondering if it is required to file estimated Federal quarterly tax returns if my financial institution will be withholding tax from my distributions at a level commensurate with my effective tax rate? I hope not, as this doesn't seem any different than your employer withholding taxes.

A few years ago, I noticed on my dad's tax return (he is in his 80s and been retired for a while) that his financial advisor was withholding federal taxes from his IRA distribution even though his federal tax liability ended up being zero (i.e. effective tax rate=0; marginal tax rate=0). He always ended up getting a refund which matched the taxes being withheld. I called his financial advisor and told her to stop having federal taxes withheld (and told her why) and she stopped doing that.

I also had to explain to my dad why his coveted tax refund would disappear which was a tougher task but in the end he understood!