Your Process of Paying RMD Tax?

[ARW44]

That is correct. To avoid problems, the payment should be part of your RMD, sent directly by your custodian. Do not receive the RMD and then write a check. Your payment by check will be considered late if the normally required earlier quarterly payments were not made.

 

[FLJim]

I have a couple years more to go before RMDs hit. I was just wondering how people are dealing with the inevitable tax "process". Are you estimating the total annual income and paying quarterly taxes? Or do you split the RMD withdrawal between 2 steps. Step one: a transfer of some from IRA to bank account or other investment account and a 2nd step: a 2nd transaction to pay the tax, thus avoiding filing quarterly. Or do you use some other method?

Just curious how others do it.

We have zero income taxes withheld from SS, pensions, 4 RMDs. Pay quarterly thru EFTPS, and make sure we pay previous year's total income tax, plus rounded up to the nearest $500 or so. If additional tax is owed at tax time there is no penalty. Has worked just fine for 10+ years.

 

[rodi]

I'm not in RMD territory yet for my IRAs... but I have a beneficiary IRA (inherited) that requires RMDs. It is held by Schwab. I have Schwab withhold federal and state taxes when I make the 4 withdrawals each year. We also have rental income and so I have a higher percentage taken out of the beneficiary IRA RMD withdrawals to cover taxes owed on the rental income. It's worked so far. I haven't made quarterly estimated payments yet since this basically pays my taxes quarterly.

 

[OldShooter]

We have zero income taxes withheld from SS, pensions, 4 RMDs. Pay quarterly thru EFTPS, and make sure we pay previous year's total income tax, plus rounded up to the nearest $500 or so. If additional tax is owed at tax time there is no penalty. Has worked just fine for 10+ years.

If a couple's AGI is over $150K or an individual over $75K, the safe harbor amount is 110% of prior year's taxes, not just equal to it. https://www.hrblock.com/tax-center/irs/tax-responsibilities/avoiding-underpayment-tax-penalty/

 

[youbet]

^^^^^^^^^

Yeah……….. Sure is.

 

[Koolau]

401(k) custodian allows me to do 20% or set my own withholding number. Easy, peasy.

 

[Souschef]

I pay my estimated quarterly using EFTPS and the CA equivalent. I withdraw the money from my IRA around the first of the month. That gives me plenty of wiggle room.

 

[TheWizard]

I don't like the idea of overpaying my taxes to the IRS by up to ten percent for the year, hence no safe harbor scheme.

I also prefer to have certain financial things on "cruise control" as the years wear on. Hence my decision to do monthly withholding from all retirement income streams, not just RMDs.

Toward the end of each year now, the only thing I do financially is compute and do a Roth conversion to get my AGI up close to, but not over, the next higher IRMAA tier threshold (projected).

Then in February, along with doing my income taxes, I might adjust my withholding by 1% or so on certain income streams.
My goal is to owe the IRS a few hundred $$ in tax each year rather than get a refund, a better situation in the unlikely event that I have an identity theft filing...

 

[Koolau]

I pay my estimated quarterly using EFTPS and the CA equivalent. I withdraw the money from my IRA around the first of the month. That gives me plenty of wiggle room.

I always hated doing quarterlies so we've found that withholding 20% of RMD plus standard deduction of pension covers us - and then some. True, we over pay and get a refund, but that is easier to us than doing quarterlies. YMMV

 

[N02L84ER]

Our only RMD is on a beneficiary IRA and we just tell them the $ to withhold for both Federal and State taxes. We make two withdrawals per year, the second in December when we have a good idea of the total tax situation.

 

[5Miler]

I am still 3 years or more from RMDs depending on pending legislation, but I did monthly withdrawals from my IRA account for 10 years until taking SS at 68.5 years old. I had Vanguard withhold Fed taxes each month which always greatly exceeded the amount due.

Since I started on SS late last year I have cancelled my monthly IRA distribution as it is not really needed. I have Fed tax withheld from my SS which conveniently is an exact match for the Fed tax due if I perform a Roth conversion up the point the tax torpedo slams me. End result is a few hundred dollars for a refund. I don't pay state tax in GA because Georgia is great. I make the ROTH conversions in two or three transactions throughout the year at my discretion.

It just so happens that my RMD is projected to be just slightly less than the ROTH conversion amount I am taking so I don't anticipate any real changes after RMDs begin other than for the anticipated Fed tax rate increase in a few years.

I find this method convenient as I can just not think about it all year and get on with other things. If I find I have overpaid by a significant amount to earn a refund, I don't really care.

 

[Sunset]

I don't like the idea of overpaying my taxes to the IRS by up to ten percent for the year, hence no safe harbor scheme.

I also prefer to have certain financial things on "cruise control" as the years wear on. Hence my decision to do monthly withholding from all retirement income streams, not just RMDs.

Toward the end of each year now, the only thing I do financially is compute and do a Roth conversion to get my AGI up close to, but not over, the next higher IRMAA tier threshold (projected).

Then in February, along with doing my income taxes, I might adjust my withholding by 1% or so on certain income streams.
My goal is to owe the IRS a few hundred $$ in tax each year rather than get a refund, a better situation in the unlikely event that I have an identity theft filing...

I don't see how it's better than aiming for owing zero. If you were very poor, then I'd agree waiting the extra months for a few $100 of refund would be painful as might be needed for food. However, I don't think this would cause you any hardship, so in effect identity theft of tax return will not cause anything other than the pain of extra paperwork and proof.
At the same time by aiming to owe the IRS a few $100, you are getting closer to the penalty limit cliff.

 

[SecondCor521]

I don't see how it's better than aiming for owing zero. If you were very poor, then I'd agree waiting the extra months for a few $100 of refund would be painful as might be needed for food. However, I don't think this would cause you any hardship, so in effect identity theft of tax return will not cause anything other than the pain of extra paperwork and proof.

Waiting a long time for a refund that is held up due to IRS identity theft would be annoying to me. I suspect that is the reason the other poster prefers owing a bit.

At the same time by aiming to owe the IRS a few $100, you are getting closer to the penalty limit cliff.

There are multiple safe harbors. One in particular is owing less than $1,000. As long as they can do the pro forma tax calculations properly, owing a few hundred works just fine.

 

[TheWizard]

Waiting a long time for a refund that is held up due to IRS identity theft would be annoying to me. I suspect that is the reason the other poster prefers owing a bit.

There are multiple safe harbors. One in particular is owing less than $1,000. As long as they can do the pro forma tax calculations properly, owing a few hundred works just fine.

Yes, I assumed that owing $1000 with no penalty was still in place, though I haven't checked the rules recently.
So by tweaking my RMD withholding percentage in February, as needed, I should be able to get close to a target of owing $200 for the current year.

Now if they actually revert tax brackets back to previous levels in 2026, AND remove the SALT limit, that will upset my apple cart and I'll have to do more cautious withholding that year until I see what my new total tax comes to...