estimated taxes due in mail today

[calmloki]

Had our various quarterlies ready to mail since mid-May. They sat on the desk taunting me and were mailed in June 1. Back a few decades ago quarterlies weren't done and April 15th had me in line late at the Post Office celebrating with all the other caution-to-the-wind barely on time filers.

[Sunset]

Quote:

Originally Posted by gstillson So how much do you need to send in? Just last year's amount that you paid in tax? I retired in 2015 with $200,000 and have been investing it and living off the proceeds. Last year I only owed $1500 in tax on $34,000 investment income but this year I already have realized $70,000 and am a bit worried I will be hit with a penalty. Seeing this thread I sent in $5,000 yesterday with the instant withdrawal from checking thing on the irs.gov website. That was just a total guess what I will owe. I use standard deductions, married filing jointly.

You will not face any penalties since you paid way more than last year's tax bill.

But to retire with only $200K savings is not normal, unless you have a big gov't pension.

[whaleknives]

Quote:

Originally Posted by ERD50 AFAIK, any withholding is treated by the IRS as if it was done evenly over the year. Here's a more up-to-date source than I found at the time I started this for MIL: https://www.kiplinger.com/article/re...your-rmds.html They also mention that you can have w/h from SS, and that your State may not be handled by your brokerage (Fidelity does handle IL).

For me, it looks like a January Roth conversion with April to January estimated tax payments saves about $600 over January or December conversions with withholding.

Untaxed Roth returns and delayed tax payments win over taxed IRA returns with a single tax payment. Assumes 8% return (my portfolio's current 1-year) and 12% marginal tax rate.

[audreyh1]

Quote:

Originally Posted by aja8888 Interesting, I have never gotten an email reminder or confirmation. Maybe I should sign in to my account and see if there is an option to set that up, or my email address is not correct?

I got the impression this was a new feature. This last time was also the first time I ever got an email notifying me that I had scheduled a transaction. I like that - just like I get emails from Fidelity to notify me of placed trades, initiated transfers, etc.

[FIRE'd@51]

Quote:

Originally Posted by ERD50 Thanks for the reminder. I'll also mention again, if you take RMDs, the simple, easy way to make estimated payments is to have them taken out of the RMD as a withholding. It can be done as a once a year withdrawal, and it still counts to the IRS the same as being done quarterly. If your RMD covers your total estimated taxes, it's "one and done". -ERD50

If you want to do a "one and done", can you do it any time during the year, or must it be done in the first quarter?

[gstillson]

Quote:

Originally Posted by Sunset You will not face any penalties since you paid way more than last year's tax bill. But to retire with only $200K savings is not normal, unless you have a big gov't pension.

Thanks. I thought that might be the case but was not 100% certain, especially if one went from a $1,500 tax bill to a $15,000 tax bill.

No pension. $200k savings seems like enough, or it has worked for the past 3 years at least. We only spend about $35,000 a year so it will likely grow quite a bit.

[kaneohe]

Quote:

Originally Posted by FIRE'd@51 If you want to do a "one and done", can you do it any time during the year, or must it be done in the first quarter?

The general idea is that withholding is considered to have been paid evenly throughout the yr which means that it can be done anytime. Many do it late in the yr to get the benefit of a longer tax deferral period. If you do it too late tho, it might not get done in time.

[Souschef]

Quote:

Originally Posted by braumeister Thank you, and you may now go to the counter and pick up your award for Understatement Of The Day.

But then again, everyone East of the Rockies has that opinion.

[ERD50]

Quote:

Originally Posted by kaneohe Quote: Originally Posted by FIRE'd@51 If you want to do a "one and done", can you do it any time during the year, or must it be done in the first quarter? The general idea is that withholding is considered to have been paid evenly throughout the yr which means that it can be done anytime. Many do it late in the yr to get the benefit of a longer tax deferral period. If you do it too late tho, it might not get done in time.

My understanding (and experience) as well.

I set my MIL's early in the year, scheduled for late October, and I have a reminder on my calendar to verify it was all done. I could push the schedule later, but I wanted some extra breathing room, just in case something went wrong, so I'd have plenty of time to react before holiday and EOY stuff happens. Plus, she sees it on her OCT EOM in early November, so that's another reminder/verification.

It's been smooth as silk, so glad I made that change for her, and will do it for myself when the time comes (we get by with deductions from DW's current work).

-ERD50

[ERD50]

Quote:

Originally Posted by whaleknives For me, it looks like a January Roth conversion with April to January estimated tax payments saves about $600 over January or December conversions with withholding. Untaxed Roth returns and delayed tax payments win over taxed IRA returns with a single tax payment. Assumes 8% return (my portfolio's current 1-year) and 12% marginal tax rate.

I'm not sure I'm following this. Is it a calculation that the early ROTH contribution w/o withholding (and paying Quarterly estimates) comes out ahead, due to the extra non-taxable growth in the ROTH?

I guess I'd have to run the numbers (and I'm too tired right now), but tax on the assumed 8% growth would strike me as a rather small number, like 12% of 8%?

Are you also factoring in the part-year loss of growth in the quarterly payments? A $600 delta seems high. OK, calculator says $600 tax of 8% growth at the 12% bracket would be due on a $62,500 conversion (assuming you are converting to the top of the 12%, but you may be one bracket higher). So how can you save $600?

-ERD50

[ERD50]

Quote:

Originally Posted by gstillson ... No pension. $200k savings seems like enough, or it has worked for the past 3 years at least. We only spend about $35,000 a year so it will likely grow quite a bit.

gstillson, welcome to the forum. I'd suggest you start a new thread to get some feedback on your plan.

If those numbers tell the whole story, I must say that a 17.5% withdrawal rate would be considered extremely aggressive, based on history. I'm not sure what your measure of 'worked' is for the past 3 years, but I assume you need many more years for it to 'work', and future conditions will likely have some 3 year periods far worse than they have been the past 3 years.

- ERD50

[kaneohe]

Quote:

Originally Posted by ERD50 I'm not sure I'm following this. Is it a calculation that the early ROTH contribution w/o withholding (and paying Quarterly estimates) comes out ahead, due to the extra non-taxable growth in the ROTH? I guess I'd have to run the numbers (and I'm too tired right now), but tax on the assumed 8% growth would strike me as a rather small number, like 12% of 8%? Are you also factoring in the part-year loss of growth in the quarterly payments? A $600 delta seems high. OK, calculator says $600 tax of 8% growth at the 12% bracket would be due on a $62,500 conversion (assuming you are converting to the top of the 12%, but you may be one bracket higher). So how can you save $600? -ERD50

Would have been nice to have seen the original numbers. Didn't see the size of the Roth conversion mentioned. This seems like the typical Roth conversion with the added w/h or not twist. Without the latter (twist) the conventional thinking is that it is best to convert and pay tax w/ external funds.

This allows the whole TIRA to be converted to the Roth shelter. If tax rates at conversion and w/d are the same, the Roth comes out ahead by the tax on the taxable side fund that the TIRA guy has because he didn't use the taxable side fund to pay the conversion tax.

However in the 12% bracket (except for $200) at the top, the LTCG tax is 0 so there might not be any difference between w/h and not w/h at conversion.
In this case, w/h might come out ahead because the estimated taxes had to be paid earlier than the w/h as you pointed out.

[whaleknives]

Quote:

Originally Posted by ERD50 I'm not sure I'm following this. Is it a calculation that the early ROTH contribution w/o withholding (and paying Quarterly estimates) comes out ahead, due to the extra non-taxable growth in the ROTH? I guess I'd have to run the numbers (and I'm too tired right now), but tax on the assumed 8% growth would strike me as a rather small number, like 12% of 8%? Are you also factoring in the part-year loss of growth in the quarterly payments? A $600 delta seems high. OK, calculator says $600 tax of 8% growth at the 12% bracket would be due on a $62,500 conversion (assuming you are converting to the top of the 12%, but you may be one bracket higher). So how can you save $600? -ERD50

A 2019 Roth conversion of $96,919 for 3 cases, calculating monthly balances from January 2019 to January 2020:

1. January 2019 conversion with $11,685 estimated taxes in 4 equal payments from April to January, January 2020 balance $93,688.
2. December 2019 conversion with $12,572 tax withheld, January 2020 balance $93,119.
3. January 2019 conversion with $11,685 tax withheld, January 2020 balance $93,109.

Case 1 saves $569 over Case 2 and $580 over Case 3. It's a trade off of cash flows for untaxed Roth growth, taxed traditional IRA growth, and tax payments. I had to look at monthly balances to keep it straight.

[ERD50]

Quote:

Originally Posted by whaleknives A 2019 Roth conversion of $96,919 for 3 cases, calculating monthly balances from January 2019 to January 2020: January 2019 conversion with $11,685 estimated taxes in 4 equal payments from April to January, January 2020 balance $93,688. December 2019 conversion with $12,572 tax withheld, January 2020 balance $93,119. January 2019 conversion with $11,685 tax withheld, January 2020 balance $93,109. Case 1 saves $569 over Case 2 and $580 over Case 3. It's a trade off of cash flows for untaxed Roth growth, taxed traditional IRA growth, and tax payments. I had to look at monthly balances to keep it straight.

OK, thanks. I think I'd need to go through those monthly balances to catch all the details. But I guess this is due to something I didn't initially think of, and that is that if you have taxes w/h from a conversion, you need to increase the converted amount to end up with the same net in the ROTH, and you either pay taxes on the added conversion amount, or it limits how much you can convert and still stay in the same bracket. So that is a disadvantage to w/h from a ROTH conversion.

Still worth mentioning though, as someone might just find it convenient, or timing might make it work for them (say they didn't do needed quarterly payments, and aren't taking RMDs, but could convert enough to pay their annual estimated taxes). That might be worth any extra taxes to them. Or as one poster said, forget about it, just pay a (small) penalty and get on with life.

-ERD50

[UnrealizedPotential]

Quote:

Originally Posted by gstillson Thanks. I thought that might be the case but was not 100% certain, especially if one went from a $1,500 tax bill to a $15,000 tax bill. No pension. $200k savings seems like enough, or it has worked for the past 3 years at least. We only spend about $35,000 a year so it will likely grow quite a bit.

If you don't mind I would appreciate it if you could explain how you can retire on 200K and withdraw over 30k yearly , grow your stash, and make it work. Not saying it can't be done, just wondering how you do it. My nest egg is way over twice that, and I only spend about 14K yearly.


What do you have your 200k invested in?

[whaleknives]

Quote:

Originally Posted by whaleknives For me, it looks like a January Roth conversion with April to January estimated tax payments saves about $600 over January or December conversions with withholding. Untaxed Roth returns and delayed tax payments win over taxed IRA returns with a single tax payment. Assumes 8% return (my portfolio's current 1-year) and 12% marginal tax rate.

Quote:

Originally Posted by ERD50 I'm not sure I'm following this. Is it a calculation that the early ROTH contribution w/o withholding (and paying Quarterly estimates) comes out ahead, due to the extra non-taxable growth in the ROTH? I guess I'd have to run the numbers (and I'm too tired right now), but tax on the assumed 8% growth would strike me as a rather small number, like 12% of 8%? Are you also factoring in the part-year loss of growth in the quarterly payments? A $600 delta seems high. OK, calculator says $600 tax of 8% growth at the 12% bracket would be due on a $62,500 conversion (assuming you are converting to the top of the 12%, but you may be one bracket higher). So how can you save $600? -ERD50

Quote:

Originally Posted by whaleknives A 2019 Roth conversion of $96,919 for 3 cases, calculating monthly balances from January 2019 to January 2020: January 2019 conversion with $11,685 estimated taxes in 4 equal payments from April to January, January 2020 balance $93,688. December 2019 conversion with $12,572 tax withheld, January 2020 balance $93,119. January 2019 conversion with $11,685 tax withheld, January 2020 balance $93,109. Case 1 saves $569 over Case 2 and $580 over Case 3. It's a trade off of cash flows for untaxed Roth growth, taxed traditional IRA growth, and tax payments. I had to look at monthly balances to keep it straight.

Quote:

Originally Posted by ERD50 OK, thanks. I think I'd need to go through those monthly balances to catch all the details. But I guess this is due to something I didn't initially think of, and that is that if you have taxes w/h from a conversion, you need to increase the converted amount to end up with the same net in the ROTH, and you either pay taxes on the added conversion amount, or it limits how much you can convert and still stay in the same bracket. So that is a disadvantage to w/h from a ROTH conversion. Still worth mentioning though, as someone might just find it convenient, or timing might make it work for them (say they didn't do needed quarterly payments, and aren't taking RMDs, but could convert enough to pay their annual estimated taxes). That might be worth any extra taxes to them. Or as one poster said, forget about it, just pay a (small) penalty and get on with life. -ERD50

Here are my numbers, have at them!

Roth Conversion Cases.PNG