Pension withholding starting in April

[statsman]

Is it too late to start tax withholding in April from a pension? I've decided I would rather withhold from my pension than deal with estimated taxes. This is the first year we've needed to make the decision, and any election now to start withholding won't occur until the April pension check (processing delays bypass the March pension check).

I've read somewhat conflicting opinions on tax withholding in retirement. Some indicate the withholding should be reasonably distributed throughout the tax year, at least in relation to the income being taxed. Others indicate that the total withholding for the year is all that matters.

 

[gauss]

If you don't send in any estimated payments, then as long as you withhold enough from the year via 1099 / w2 etc. withholding, then you should avoid underwitholding penalty.

Enough is typically either 100% of last years income tax or 90% of this years income tax. Higher income individuals may have higher percentages required.

Unlike estimated payments, there is no deadline, other than 12/31/2019, of when the witholding needs to be done.

As such, starting withholding in April should be fine.

-gauss

p.s. If you sent in any estimated payments already, you may need to file form IRS 2210.

 

[Bir48die]

Not sure about a pension. I picked my withholding on my deferred compensation. I would think you could call HR and change. I like withholding because it helps me cover CG’s.

 

[braumeister]

I've read somewhat conflicting opinions on tax withholding in retirement. Some indicate the withholding should be reasonably distributed throughout the tax year, at least in relation to the income being taxed. Others indicate that the total withholding for the year is all that matters.

The bolded part is true.
Any withholding from any source is always considered (by the IRS) to have been done evenly throughout the year. So if you pay no estimated taxes but have enough withheld in December, you're just fine in their eyes.

Side note: This can be very convenient for those subject to RMDs. Take it in December and have the right amount (up to 100%) withheld and you're golden.

 

[statsman]

If you don't send in any estimated payments, then as long as you withhold enough from the year via 1099 / w2 etc. withholding, then you should avoid underwitholding penalty.

Enough is typically either 100% of last years income tax or 90% of this years income tax. Higher income individuals may have higher percentages required.

Unlike estimated payments, there is no deadline, other than 12/31/2019, of when the witholding needs to be done.

As such, starting withholding in April should be fine.

-gauss

p.s. If you sent in any estimated payments already, you may need to file form IRS 2210.

No estimated tax payments made so far in 2019 (or ever!).

We had a rather large tax bill for the capital gains on a house sold in October 2018 (did meet safe harbor for 2018), so we'll need to meet at least 90% of this year's income tax.

I'll start the tax withholding from my pension in April. In addition, I have an RMD for an inherited IRA I usually take in December, so I can withhold from that distribution in the event we're going to be short of the 90% mark.

 

[statsman]

The bolded part is true.
Any withholding from any source is always considered (by the IRS) to have been done evenly throughout the year. So if you pay no estimated taxes but have enough withheld in December, you're just fine in their eyes.

Side note: This can be very convenient for those subject to RMDs. Take it in December and have the right amount (up to 100%) withheld and you're golden.

That seems to be the most common explanation. I gather some people writing these articles are mixing up tax withholding with estimated tax *payments*.

As I indicated in my previous response, I do have an inherited IRA. It's not large, but it does kick out a few thousand on an RMD. I actually used it in 2018 because I didn't fully understand the safe harbor rules, and I needed an additional $900 in federal taxes withheld to meet safe harbor for 2018. At least TurboTax says we won't owe any penalties for 2018 despite a whopping capital gains on a house sale and subsequent tax bill.

 

[statsman]

Not sure about a pension. I picked my withholding on my deferred compensation. I would think you could call HR and change. I like withholding because it helps me cover CG’s.

I determined the ability to select tax withholding on my pension is available online. Additionally, my company's employee/ex-employee website has a tax calculator that is based on the frequency of payment (weekly, bi-weekly, monthly, etc.), status (single rate/married rate), and exemptions. With that calculation, I was able to have an additional amount withheld. I probably won't see the withholding until the April payment.

 

[DrRoy]

You can start withholding anytime. It only applies to the current tax year though.

 

[rayvt]

In the first few years of retirement I tried to adjust my pension withholdings to get down to approximately zero owed or refunded. It never worked, I would either owe a huge amount or get a huge refund.

Then I discovered the trick of doing one large witholding from an IRA withdrawal in December, large enough to meet the safe-harbor rule. Much, much easier.