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Paying Taxes in Retirement With Tax Withholding Distributions
Old 11-26-2023, 08:28 PM   #1
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Paying Taxes in Retirement With Tax Withholding Distributions

How anyone used the One-Time Tax Withholding Distribution strategy in retiremment to pay taxes rather than paying quarterly taxes or having the IRS withholds a certain percentage from each distribution based on what your tax liability is assumed to be for the year?

Below is a link to an article that explains the strategy.

https://www.wealthenhancement.com/s/...LH4BYDSV5AKZIU

https://www.linkedin.com/posts/steve...ium=member_ios
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Old 11-26-2023, 08:51 PM   #2
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Of course, I use large withholding from retirement account distributions. Just last week I took my RMD from my 401k and specified 100% withholding. In the next few weeks, as I refine my end of year tax return draft, I will take my RMD from my IRA, take my final QCD for the year, then specify what percentage of the remaining RMD need to be withheld to reach my end of year tax liability.

Until last week, I have not paid any federal taxes for 2023.
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Old 11-26-2023, 11:07 PM   #3
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Yes, before the end of December I make a withdraw from my IRA and have the majority of it withheld by Vanguard for federal taxes to satisfy the safe harbor from an underpayment penalty. I make other withdraws throughout the year with zero withheld and do not make estimated quarterly payments.
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Old 11-27-2023, 01:19 AM   #4
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I don't use that method to pay my taxes.
Note that the 60-day rollover thing for replenishing your tIRA cannot be used for your RMD amount, once your age makes that required...
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Old 11-27-2023, 04:45 AM   #5
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Been using this system for 6 years. Every December I closely calculate my final tax bill and take a W/D from my tIRA. Withholding is 99% of the withdraw amount. It is the easiest system I've found for my situation.
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Old 11-27-2023, 05:45 AM   #6
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That is how I pay my taxes. One big withholding near the end of the year. Seems to work fine
I do not need to bother with using the 60 day rollover angle since my taxable balance is small.
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Old 11-27-2023, 05:57 AM   #7
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I have been withholding from my pension. Not into RMS's yet.
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Old 11-27-2023, 07:41 AM   #8
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I’ve been doing this since I fired my employer. For the first five years I had an inherited annuity I was liquidating using the five year rule, so I had no problem withholding enough from that to cover the tax bill. Now that’s done, all I have is a small inherited IRA. All of the RMDs from that go to taxes, and we withhold state tax from DW’s small pension and federal from her SS. I plan my withholding to at least cover the amount of tax paid in the previous year, avoiding an underpayment penalty. IRS treats 1099 withholding as if it were taken throughout the year.
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Old 11-27-2023, 08:26 AM   #9
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I did my Roth Tax planning in Jan 2023.......I just filled out a mock 1040 form for 2023 with a $25000 conversion. I knew that my tax rate was 12%. So 25000 x 12%=3000
divide that my 12 months =$250
I then set up an auto deduction from my checking into my brokerage MM each mont and I will have the $3000 ready for my taxes at the end of Dec so I can pay for my extra taxes in Feb when I do my taxes............no CPA needed.
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Old 11-27-2023, 09:23 AM   #10
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Help me understand the Real-World Example in the article below where it talks about replenishing the $800k back to the IRA on the same day to avoid any tax on the distribution.

https://www.wealthenhancement.com/s/...LH4BYDSV5AKZIU
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Old 11-27-2023, 09:30 AM   #11
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Quote:
Originally Posted by G-Man View Post
How anyone used the One-Time Tax Withholding Distribution strategy in retiremment to pay taxes rather than paying quarterly taxes or having the IRS withholds a certain percentage from each distribution based on what your tax liability is assumed to be for the year?Sure. ...
Sure. Works fine for us both federal and state. States may vary though; be sure to check.
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Old 11-27-2023, 09:42 AM   #12
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We have always waited till we file our taxes to pay. Up until this year it really has not been a lot and we have never been charged penalties. I am going to try this method for 2023 and see if we get penalties, if we do, I will change tactics for 2024.
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Old 11-27-2023, 09:49 AM   #13
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Originally Posted by G-Man View Post
Help me understand the Real-World Example in the article below where it talks about replenishing the $800k back to the IRA on the same day to avoid any tax on the distribution.

https://www.wealthenhancement.com/s/...LH4BYDSV5AKZIU

All you need is $800k in taxable account. And $800k in an IRA that you can withdraw. And follow the 60 day rule. The net income is taxable. Maye not today, but one day.
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Old 11-27-2023, 09:51 AM   #14
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Quote:
Originally Posted by G-Man View Post
Help me understand the Real-World Example in the article below where it talks about replenishing the $800k back to the IRA on the same day to avoid any tax on the distribution.

https://www.wealthenhancement.com/s/...LH4BYDSV5AKZIU
You may "borrow" from your IRA tax free as long as the full amount of the distribution is returned to an IRA within 60 days.

So take a withdrawal, withhold as needed, return the withdrawal within 60 days.

End result is no taxable income and tax payment done.

Better to not wait 60 days, especially if that puts you into new tax year. Does not change tax result but could complicate your tax filing.
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Old 11-27-2023, 10:10 AM   #15
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The scheme does not reduce your taxes. It just rearranges when you pay them.
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Old 11-27-2023, 10:12 AM   #16
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I learned this strategy from the people on this site and have used it for several years. I find the process easier than the quarterly payment process. My current monthly tax withholding from my pension is for my pension income. By mid-December I will have modeled my 2023 tax return covering all of our income. At that time I will make a withdrawal from my 401k, with the vast majority of it withheld for federal and state taxes.

I do not worry about replenishing, my 401K is big enough that much of it will not be converted to Roth by the time I reached RMD age. I see this as potentially reducing those future RMDs (though even with these withdrawals to pay taxes the 401K is still more than when I retired, first world issue ).
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Old 11-27-2023, 10:23 AM   #17
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Originally Posted by ShokWaveRider View Post
We have always waited till we file our taxes to pay. Up until this year it really has not been a lot and we have never been charged penalties. I am going to try this method for 2023 and see if we get penalties, if we do, I will change tactics for 2024.
Exactly what I am doing also...........we will see in feb with we have any penalty when we do the taxes
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Old 11-27-2023, 10:30 AM   #18
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... I am going to try this method for 2023 and see if we get penalties ...
Quote:
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... we will see in feb with we have any penalty when we do the taxes
We have been doing this for years with no penalties except (true confessions time) last year when I paid 100% of the prior years taxes, forgetting that at our AGI we are required to pay 110%.
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Old 11-27-2023, 10:32 AM   #19
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Old Shooter..............you really do live on the edge............love your stories
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Old 11-27-2023, 10:34 AM   #20
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Originally Posted by jollystomper View Post
I learned this strategy from the people on this site and have used it for several years. I find the process easier than the quarterly payment process. My current monthly tax withholding from my pension is for my pension income. By mid-December I will have modeled my 2023 tax return covering all of our income. At that time I will make a withdrawal from my 401k, with the vast majority of it withheld for federal and state taxes.

I do not worry about replenishing, my 401K is big enough that much of it will not be converted to Roth by the time I reached RMD age. I see this as potentially reducing those future RMDs (though even with these withdrawals to pay taxes the 401K is still more than when I retired, first world issue ).
Ok. So, you don't need to replenish your 401k or T-IRA?
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