Questions about RMD and SS Deductions

[Fleur58]

1. If my RMD is 40K per year at Fidelity and will be in the 22% tax bracket. Do I get the whole amount or does Fidelity take out deductions? What are the deductions that will come out of this check? I live in a state that taxes retirement money (approx with state and local 9%). If there is a choice, is it better to take the whole RMD amount and deal with taxes later?

2. Social Security. My states does not tax SS. I'm supposed to get $3224 at FRA. What are the deductions from this amount?

 

[Sue J]

1. If my RMD is 40K per year at Fidelity and will be in the 22% tax bracket. Do I get the whole amount or does Fidelity take out deductions? What are the deductions that will come out of this check? I live in a state that taxes retirement money (approx with state and local 9%). If there is a choice, is it better to take the whole RMD amount and deal with taxes later?

I don't know about Fidelity, but at Vanguard you can designate any amount up to 95% of your RMD withdrawl amount to be withheld as Fed tax. I did not see an option for state withholding. It's one of the steps before you submit the transaction.

2. Social Security. My states does not tax SS. I'm supposed to get $3224 at FRA. What are the deductions from this amount?

In order to have Fed tax withheld from SS monthly benefit you have to fill out a W-4V https://www.irs.gov/pub/irs-pdf/fw4v.pdf form and mail it to your local SS office. The options are 7, 10, 12 or 22%. I didn't have Fed tax withheld when I started SS, there may be a way to start it at the beginning. Instead I just submitted this to start witholding for 2022.

Hope that helps.

 

[Souschef]

I would rather control the deductions rather than the brokerage. I make quarterly estimated payments for Federal and state taxes. I take the payments from my IRAs sa needed to meet the RMD.

 

[SecondCor521]

1. If my RMD is 40K per year at Fidelity and will be in the 22% tax bracket. Do I get the whole amount or does Fidelity take out deductions? What are the deductions that will come out of this check? I live in a state that taxes retirement money (approx with state and local 9%). If there is a choice, is it better to take the whole RMD amount and deal with taxes later?

2. Social Security. My states does not tax SS. I'm supposed to get $3224 at FRA. What are the deductions from this amount?

1. I suspect none unless you ask them to withhold federal and/or state. If you do "take the whole RMD amount and deal with taxes later", then you may very well incur an underpayment penalty at the federal level and possibly at the state level as well. If you would incur an underpayment penalty, it is better to adjust your withholding and/or make estimated tax payments to avoid it.

2. Most people have their Medicare premiums deducted from their Social Security checks - it may even be required, I'm not sure. As the other poster noted, you can also have federal income tax withheld from your SS check if you wish.

If you are actually in the 22% bracket, then you probably have other income in addition to your RMD and SS. If that's the case, then you'll probably have some of your SS income added to your taxable income and will owe federal income taxes on that taxable SS. You could model this in your tax software to see what kind of effect your SS income will have and how much of it will be taxed by looking at lines 6a and 6b of a test tax return.

 

[Graybeard]

1. If my RMD is 40K per year at Fidelity and will be in the 22% tax bracket. Do I get the whole amount or does Fidelity take out deductions? What are the deductions that will come out of this check? I live in a state that taxes retirement money (approx with state and local 9%). If there is a choice, is it better to take the whole RMD amount and deal with taxes later?

Fidelity is the custodian for my 401k, I called them about this 2 weeks ago. They said any percentage can be withheld in 1% increments. I don't know if that is specific to my plan or true for everyone. Why not call and ask them?

 

[Dtail]

1. I suspect none unless you ask them to withhold federal and/or state. If you do "take the whole RMD amount and deal with taxes later", then you may very well incur an underpayment penalty at the federal level and possibly at the state level as well. If you would incur an underpayment penalty, it is better to adjust your withholding and/or make estimated tax payments to avoid it.

2. Most people have their Medicare premiums deducted from their Social Security checks - it may even be required, I'm not sure. As the other poster noted, you can also have federal income tax withheld from your SS check if you wish.

If you are actually in the 22% bracket, then you probably have other income in addition to your RMD and SS. If that's the case, then you'll probably have some of your SS income added to your taxable income and will owe federal income taxes on that taxable SS. You could model this in your tax software to see what kind of effect your SS income will have and how much of it will be taxed by looking at lines 6a and 6b of a test tax return.

On point #2, I believe it is required.
As for point #1, for my parents who only have passive income throughout the year, I have the full estimated taxes withheld from the RMD distributions in the 4th quarter, so no estimated tax filings are needed.

 

[The Cosmic Avenger]

Fidelity will let you set the tax rate for both Federal and state withholding on RMDs, mine is 25/5. (I don't know why I chose 25 instead of 24, but when I first set it up the RMDs were in the low 4 digits so it didn't really matter that much.)

 

[latexman]

Fidelity is the custodian for my 401k, I called them about this 2 weeks ago. They said any percentage can be withheld in 1% increments. I don't know if that is specific to my plan or true for everyone. Why not call and ask them?

I just made a distribution from Fidelity. The default Federal rate is 10%, but I set withholding to 24%. The default NC rate is 4%, but I set withholding to 6%. Yes, whatever % I typed into the “custom rate” cell was used.

 

[Gotadimple]

2. Most people have their Medicare premiums deducted from their Social Security checks - it may even be required, I'm not sure. As the other poster noted, you can also have federal income tax withheld from your SS check if you wish.

Medicare Part B premiums are automatically deducted from your SS check. As an option you can also have Medigap or Medicare Advantage premiums deducted from your check as well.

- Rita