What is the best way to pay estimated Federal Taxes in Retirement?

[pb4uski]

I don't think that works. This is a conversion, not an IRA rollover. The taxes withheld are considered a distribution, not a conversion. Only the 1% would be converted. You can't just subsequently contribute the 99% back into your Roth.

Has anyone actually done this and show me I'm wrong?

You might be right but they you could just make it a tIRA withdrawal with 99% withholding and then immediately make a rollover contribution for the amount withheld. Net effect is a 1% tIRA withdrawal since 99% is replaced from taxable account funds but as a tax prepayment the IRS considers it done over the year rather than in December.

 

[temartin]

You might be right but they you could just make it a tIRA withdrawal with 99% withholding and then immediately make a rollover contribution for the amount withheld. Net effect is a 1% tIRA withdrawal since 99% is replaced from taxable account funds but as a tax prepayment the IRS considers it done over the year rather than in December.

Yes, That is right, that ^^ is just an indirect (60 Day) IRA rollover. But if the original idea worked (Indirect IRA to Roth, pay withheld taxes back into Roth), it would certainly be cool to be able to pay the yearly taxes and simultaneously convert all that money from taxable to Roth.

I'm gonna dig more.

 

[TheWizard]

Someone explain why rayvt's rollover method isn't just extra footwork for no gain.
Assume taxes for year are $10k and RMD is $20k.
So do your preferred mix of QCD + partial RMD totalling $10k anytime the first 11 months of the year.

Then do a $10k (remaining) RMD on 12/15, 100% withheld, and you're all set!

 

[Gumby]

That does appear simpler, but if you wanted all of your RMD to go to QCD, I think you would have to do it like rayvt says.

 

[AudiDudi]

We have pension withholding which is *very* small. I just have 7% withheld from SS and it comes close enough to not have to worry about. Also Fidelity insists on withholding 20% on our 401k monthly withdrawals.

 

[rayvt]

Someone explain why rayvt's rollover method isn't just extra footwork for no gain.
Assume taxes for year are $10k and RMD is $20k.
So do your preferred mix of QCD + partial RMD totalling $10k anytime the first 11 months of the year.

Then do a $10k (remaining) RMD on 12/15, 100% withheld, and you're all set!

Yeah, that's probably simpler.

----------------------------------------------------------
You want to accomplish three things:
1) You prefer to take IRA withdrawals late in the year, in order to capture the typical investment growth during the year.
2) Take an IRA withdrawal late in the year, 100% withheld, enough to satisfy the safe harbor withholding amount.
3) Take your RMD, but which you do not need the money.

There are constraints.
1) Sequencing rule is that all IRA withdrawals up to the RMD, is an RMD withdrawal.
2) A QCD withdrawal is non-taxable _ONLY_ if it is an RMD withdrawal.
3) You can do a 60-day rollover of a non-RMD withdrawal, back into the IRA.
4) The re-deposit rollover must be done within 60 days of the withdrawal.
5) You cannot do a 60-day rollover of an RMD withdrawal.

In January you have a new RMD. You would like to use that cash for the tax withholding of the _previous_ year.
But time does not go backward, so you have to make a withholding withdrawal in December using the money that you must withdraw next year.

Now you could do that by taking a withdrawal in December and then the next day write a check and send it to the IRA custodian as a 60-day rollover. (It does not have to go back into the same IRA account, any of your IRA accounts will do.) That's assuming you have the money in your checking account. Then sometime after January 1st, use RMD money to replenish your checking account.

But you don't have to do the rollover the next day -- you have up to 60 days to do it.
You would prefer to take your RMD late in the year. Fine, but you only have 60-days to do roll the money back.

Doing the rollover also pushes the tax on that withdrawal into the next year.

OTOH, if you truly don't want or need your RMD, you could skip all this stuff and just take your RMD in December and have the safe harbor amount withheld. (Take any QCD first.)

A lot of people take their RMD in-kind, by transferring stocks from the IRA to a taxable account. The tax withholding has to be cash, of course.

 

[samcat]

I didn't see where anyone mentioned when estimated taxes are actually due. They are due April 15, June 15, September 15 and January 15 (for the prior year). The dates are not exactly intuitive.

 

[FlaMariner]

What is the best way to pay estimated Federal Taxes in Retirement?

I'm over 59.5. I withdraw what I want to pay Caesar from my IRA on the latest possible day in December.

 

[frank05]

I didn't see where anyone mentioned when estimated taxes are actually due. They are due April 15, June 15, September 15 and January 15 (for the prior year). The dates are not exactly intuitive.

I just add a never ending reminder to my calendar to remind me via an email a week ahead of the due dates.

 

[OldShooter]

... There are constraints.
1) Sequencing rule is that all IRA withdrawals up to the RMD, is an RMD withdrawal.
2) A QCD withdrawal is non-taxable _ONLY_ if it is an RMD withdrawal. ...

Sorry, no. There is no such thing as an "RMD withdrawal". Withdrawals are withdrawals; call them distributions if you prefer. The RMD is simply a number. To avoid penalties one must have total withdrawals for the year equal to or larger than the RMD. End of story.

A QCD is a distribution with special rules, most specifically that the transaction must be to send money directly from an IRA to a qualified charity. Donor Advised Funds (DAFs) are not qualified to receive QCDs. Funds withdrawn via QCDs count towards the RMD. This is the only connection between the two.

It used to be that the eligibility dates for QCDs and the beginning dates for RMDs were the same. I think this has led to a lot of confusion about whether they are somehow connected or not.

You may note that the IRS doesn't receive any information about withdrawals except for the total number provided on the 1099 and the QCD total provided by the taxpayer. No amounts, no dates. So no way for them to establish or enforce any rules relating to the timing or amounts of individual withdrawals.

I'll await seeing IRS documentation that refutes these statements but I don't think you'll find any.

 

[pb4uski]

I didn't see where anyone mentioned when estimated taxes are actually due. They are due April 15, June 15, September 15 and January 15 (for the prior year). The dates are not exactly intuitive.

No, you would think they would be 15 days after the end of each calendar quarter; so April 15, July 15, Oct 15 and Jan 15.

Only explanation that I can muster is Congress and/or the IRS are morons.

 

[pb4uski]

Sorry, no. There is no such thing as an "RMD withdrawal". Withdrawals are withdrawals; call them distributions if you prefer. The RMD is simply a number. To avoid penalties one must have total withdrawals for the year equal to or larger than the RMD. End of story.

A QCD is a distribution with special rules, most specifically that the transaction must be to send money directly from an IRA to a qualified charity. Donor Advised Funds (DAFs) are not qualified to receive QCDs. Funds withdrawn via QCDs count towards the RMD. This is the only connection between the two. ...

I'll await seeing IRS documentation that refutes these statements but I don't think you'll find any.

+1 what you describe is consist with my understanding... RMD is just the minimum amount that you much withdraw in a calendar year and QCDs count towards minimum requirement.

 

[imjustawarrior]

Yes, That is right, that ^^ is just an indirect (60 Day) IRA rollover. But if the original idea worked (Indirect IRA to Roth, pay withheld taxes back into Roth), it would certainly be cool to be able to pay the yearly taxes and simultaneously convert all that money from taxable to Roth.

I'm gonna dig more.

Here is a recent thread from bogleheads that cover this. It is doable. I may try it for the first time this year.

https://www.bogleheads.org/forum/viewtopic.php?p=7731023#p7731023

 

[Livefree]

I didn't see where anyone mentioned when estimated taxes are actually due. They are due April 15, June 15, September 15 and January 15 (for the prior year). The dates are not exactly intuitive.

I usually get a small refund on April 15th for prior years taxes..what if you owe instead, do you then owe 2 payments including the first quarterly payment, and can you include it in one payment?

 

[cathy63]

I usually get a small refund on April 15th for prior years taxes..what if you owe instead, do you then owe 2 payments including the first quarterly payment, and can you include it in one payment?

Yes, you pay both in that case. If you mail them they go to different addresses, so you can't combine them. If you pay online, then you have to identify the reason for each payment, so again, you can't combine them.

 

[imnontrad]

I file estimated taxes quarterly. Plus I have a pension where I have taxes taken out at the Single/0 calculation. Then when I withdraw from my inherited IRA, I have a percentage withheld.
I just make sure that the total equals (at least) what I paid in taxes on the previous return so I have never had an underpayment penalty.

 

[rayvt]

Sorry, no. There is no such thing as an "RMD withdrawal". Withdrawals are withdrawals; ...
A QCD is a distribution with special rules, ...

Well, yeah. But it's less cumbersome than continually writing "...withdrawal that does/doesn't satisfy the RMD."

Guess I'm not the only one who gets pedantic.

You may note that the IRS doesn't receive any information about withdrawals except for the total number provided on the 1099 and the QCD total provided by the taxpayer. No amounts, no dates. So no way for them to establish or enforce any rules relating to the timing or amounts of individual withdrawals.

Right. As long as they don't do a full-scale audit and look at all your activity and dates.

That 2015 change of allowable 60-day rollovers from once per account to once for ALL accounts was due to somebody getting audited and taking it to court. (Bobrow v. Commissioner)
(He should have just paid up and shut his mouth.)

 

[aja8888]

I have been paying federal income tax quarterly via EFTPS based on an estimate of income from various taxable sources and dividing by 4 to get even estimated payments. These income sources are as follows:

Interest and dividends
SS income (no withholding)
RMD pull in December (no withholding)

So this has worked for me, and if I guessed wrong, I would make a final EFTPS payment adjustment before the Jan 15th payment.

If I continued to have these income streams, and decided to not use EFTPS quarterly payment system, is it correct that I can use the December RMD pull, WITH ENOUGH WITHHOLDING taken out, to cover taxes owed, and be safe from penalties?

 

[mickeyd]

All of my DB income streams get taxes taken out prior to me receiving $. Same for RMD. For investment returns, I guess what I will owe Uncle Sam and each quarter and enter it on EFTPS system. When I do my taxes I pull these together and make sure that it is included there. I usually get a small IRS refund.

BTW I got my refund this year (using TT) in 11 days.

Pretty simple...

 

[engineernerd]

I have been paying federal income tax quarterly via EFTPS based on an estimate of income from various taxable sources and dividing by 4 to get even estimated payments. These income sources are as follows:

Interest and dividends
SS income (no withholding)
RMD pull in December (no withholding)

So this has worked for me, and if I guessed wrong, I would make a final EFTPS payment adjustment before the Jan 15th payment.

If I continued to have these income streams, and decided to not use EFTPS quarterly payment system, is it correct that I can use the December RMD pull, WITH ENOUGH WITHHOLDING taken out, to cover taxes owed, and be safe from penalties?

That's certainly my understanding.

It's also true that you can withhold taxes from your SS income, though you have to choose from the menu of percentages they allow. I read that the highest option is 22%, which isn't that high, but could be helpful in years where your RMD isn't going to be big enough.

 

[engineernerd]

Here is a recent thread from bogleheads that cover this. It is doable. I may try it for the first time this year.

https://www.bogleheads.org/forum/viewtopic.php?p=7731023#p7731023

I didn't know this, thanks! Of course first you'd have to decide if a Roth conversion makes sense that year, but if it does then you could also piggyback on it to have tax withheld for other income as well as the conversion itself. You'd just have to be sure to have enough after-tax cash ready so you can roll the full amount of the original distribution over into the Roth by the 60-day deadline.

 

[Countdown To Freedom]

I have an independent consulting job and every quarter I pay Uncle Sam 25.3% of my earnings:

7.5 percent SS + 7.5% Medicare + 10.5% Federal tax = 25.3%

I know I probably overpay but I am fine with that. When I first signed up to have federal taxes taken from my pension, they took out federal taxes on my first check based on Married, 2 dependents rather than Zero Single, so I requested an additional $150/month be taken out for federal taxes on future payments to place me in the Zero Single deduction range. This way if I am underpaying taxes on my pension, the overpayment on my quarterlies can make up the difference. And I least I know I am getting a refund at tax time for the overage.

I asked the IRS if my quarterly tax payment calculations are okay and they said I was fine.

 

[audreyh1]

I usually get a small refund on April 15th for prior years taxes..what if you owe instead, do you then owe 2 payments including the first quarterly payment, and can you include it in one payment?

I’ve always paid separately but that’s because I schedule via EFTPS and a year is assigned to the estimated tax payment. You specify estimated versus return payment on EFTPS.

 

[rayvt]

I was just doing taxes in Turbotax. and I entered a 1099-R IRA withdrawal as part cash (which was 100% withheld) and part a rollover.

TT said that this couldn't be done that way. It erased the entry and told me to make 2 entries, one for the cash and one for the rollover, just make sure the total came to what was on the 1099-R.


Weird. I don't know why it did that. Shortcoming of the TT software? The IRS wants to see it as 2 withdrawals?

 

[TheWizard]

What is the best way to pay estimated Federal Taxes in Retirement?

I'm over 59.5. I withdraw what I want to pay Caesar from my IRA on the latest possible day in December.

Ok.
Good luck with that...