Your Process of Paying RMD Tax?

[CRLLS]

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.

 

[OldShooter]

We pay the safe harbor amount in December by 100% withholding from an IRA distribution. No hassles, no estimating, no penalties. Unless you can't or don't want to pay this way, there is no reason to make any payments during the year. The payment itself, of course, counts against the RMD amount.

 

[W2R]

I withdraw enough from the TSP each month throughout the year, in equal monthly payments, to meet RMD requirements (if I don't withdraw enough, my understanding is that the TSP will do it for me at the end of the year). I use this money for some of my living expenses.

Separately, I do quarterly estimated income tax payments which includes taxes on RMD withdrawals, social security, and various other income sources. Then when I do my income taxes, I might get a refund or I might have to pay depending on my estimates.

 

[Spock]

Managing my Dad's RMDs (once a year) I just had 10% withheld by Fido.
Going forward we'll probably have to put a finer point pencil to work on it as IRS processing is so backed up we're switching from overkill/overwithholding/get-a-refund to owing just enough not to get a penalty.

My personal accounts will be in the 0% bracket so I don't worry about it.

 

[disneysteve]

After discussing this with our CPA, I'm going to have taxes withheld from my RMD distribution. That way they just send me the after-tax proceeds and taxes are handled.

 

[Sue J]

I do a rough estimate of our tax liability throughout the year. Some of our income (DH's pension, my SS) has withholding, some (interest income and bank promo bonuses) does not.

Then when I take my RMD I see if our withholding is coming close to covering our tax liability at the end of the year. Usually it's going to be a little short.

So when I take my RMD from Vanguard there is an option to designate a percentage to be withheld for Federal taxes. I use this to send what's needed to the IRS and the rest goes to my bank account.

My 1099 from Vanguard will show the total amount withdrawn and the amount withheld.

The first time I did this I did a practice transaction in Vanguard to see all the steps. It was easy and then I did not submit, I cancelled it.

My RMD is not very large and I'm not using it for living expenses so I tend to take it as a lump sum later in the year. Not such a great idea this year!

 

[pb4uski]

My mother doesn't have any income flows from which she can have taxes withheld other than her RMD, so what we do for her is calculate the tax that she expects to owe for the year and have that amounithdrawan rather than making estimated payments.

For me, I do something similiar but use my pension for withholding instead of making estimated payments.

 

[TrvlBug]

We have the safe harbor amount withheld from our year end RMD. We do the inherited IRAs and half of the tIRA distributions in January and have monthly SS and annuity income. Much easier than estimated taxes.

 

[SecondCor521]

My Dad uses Vanguard's RMD service.

They recalculate his RMD for him automatically.

Every month, on the 15th of the month, they take 1/12th of the RMD amount out of his IRA, withhold federal taxes from it at a percentage rate we choose, and put the rest into his Vanguard taxable account.

Every year, I do his taxes in the spring. I have a note to myself to adjust the percentage rate if needed to make sure he'll meet one of the safe harbor rules. Since his tax situation is pretty stable, it's pretty easy to get things close enough.

I think, but am not certain, that you can configure the RMD service to do monthly/quarterly/annually, which day of the month, which funds to sell, and where to send the proceeds. You clearly can choose any whole percentage for federal withholding.

 

[Bamaman]

I will make my RMD in one withdrawal this year. I'll look at last year's taxes on my tax return and project out this year's taxes after the RMD.

I'll have FIDO withhold the federal and state taxes from my withdrawal.

 

[Gotadimple]

I do quarterly tax payments. The first year you need to guess a bit on the amount of each payment. After you file your taxes for the year, you'll have a better idea of what to set up with EFTPS. It's a nice service and your payments don't have to be equal especially if you have taxes taken out by other income streams like Social Security.

- Rita

 

[Graybeard]

First year for me so a few months ago I did a small distribution from my IRA and from my 401k just to see how it works especially how the taxes are handled. It was very easy and I was able to state the % to withhold for the IRS and state tax from each which was my biggest concern. I'm not withholding any state tax from the 401k, I was concerned there is a minimum 6.99% and that would be way more than I'd owe. I don't trust them to return the overage cuz they are bankrupt.

 

[Walt34]

I just had Vanguard withhold the percentage (I forget what it was) that was going to taxes and send that on to the IRS. They don't do state withholding so I just added that to the regularly scheduled estimated state tax payment.

 

[Souschef]

I have withdrawals scheduled through the year. I use EFTPS and the CA equivalent for estimated taxes.
I also schedule QCD;s and gifts to our 4 sons.

 

[rk911]

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're in a position where we do not need our RMDs so they are going to a Qualified Charitable Distrribution. our gross income does not increase and some of our favorite charities make out.

 

[CRLLS]

So many varying responses. Thank you all. I have some time to work it all out.

 

[TheWizard]

I've been doing monthly withdrawals from my tax-deferred 403(b) account since age 63, with a certain percentage withheld for Federal and state income taxes.
This year, I'm 72, so those withdrawals magically become my RMD. I adjusted the monthly amount a bit to just cover my RMD amount but left tax withholding as it's always been...

 

[Badger]

I have Vanguard automatically send in the RMD once a year. Throughout the year they transfer all dividends from the tIRA MF shares into a tIRA MM account and use that for the RMD. That way my shares remain the same and the cash goes into another taxable MM account for investing or use. They will send in equal amounts throughout the year if I want but one payment is sufficient for us.
It may not be the best way but it works for us. It is simple and all on autopilot.

Cheers!

 

[DrRoy]

A good question. I still have 9 years to go. More if the Secure Act passses.

 

[Golden sunsets]

Like many here, we pay 100% of our taxes out of our RMD in mid December. We track our taxable income closely throughout the year, and purchase H&R Block tax software in a Black Friday deal, so by mid December we have a very good idea of what we will owe, and withhold from our RMD accordingly. The remainder is transferred to our taxable brokerage and used as needed when rebalancing in early January.

Sent from my SM-T510 using Early Retirement Forum mobile app

 

[harllee]

we're in a position where we do not need our RMDs so they are going to a Qualified Charitable Distrribution. our gross income does not increase and some of our favorite charities make out.

Same for us.

 

[Jeb-NY]

I have my IRA with Vanguard and my wife has her's with Fidelity, both will take out whatever percentage for taxes we ask when we get RMD distributions, mine monthly my wife's yearly. I originally made some back of envelope calculations for total taxes that needed to be paid since the RMDs are the only place we pay income tax from, to get it close to what we would owe. When I miss I pay at filling or get a refund and adjust the next year to try to get closer. I figure eventually we will have a normal year but so far some unforeseen thing happens that makes the correction wrong. I aim to owe a little but that usually doesn't happen

 

[COcheesehead]

FYI current legislation being considered will push RMDs out further, 75 I believe.

 

[ARW44]

If you send enough of your RMD to the IRS and to your state agency in single payments late in the year to get to safe harbor amounts, you will not have to pay any late fees or penalties to either, and you won't have to calculate quarterly payments.

 

[OldShooter]

Be a little wary about waiting to the end of the year to pay. This works great when paying by withholding from a IRA distribution because the IRS considers withholding to have been paid smoothly though the year. But paying by another method might result in penalties for not making the first three quarterly estimated tax payments. We have always paid via withholding so I am not an expert at this but my understanding is that it is a risk. Worth checking out, anyway.