Tax withheld from an after-tax brokerage withdrawal?

[CRLLS]

I received an unexpected dividend payment of considerable size. I already had my year's taxes estimated, RMD withdrawn and had the estimated taxes for the year withheld from that RMD withdrawal. I know that the withheld tax payments are considered paid evenly throughout the year. What I am not sure of, can a withdrawal from my after-tax account also have taxes withheld and if so, would they also be considered paid evenly throughout the year? The money in that account would be taken from the cash settlement funds rather than actually selling positions, if that makes any difference.

 

[COcheesehead]

I have never seen a mechanism to withhold from taxable. Not saying there isn’t, it is just not as apparent as with a deferred withdrawal where the brokerage provides the option.

 

[SecondCor521]

I don't think that is possible. If it were possible, then yes, any withholding is considered to be paid evenly.

I suggest checking to see if your 2025 tax situation meets any of the several safe harbors. If not, I'd suggest making a fourth quarter estimated tax payment before 1/15/2026. It may be necessary to complete Form 2210 Schedule AI to eliminate an underpayment penalty if the IRS assesses it.

 

[CRLLS]

I don't think that is possible. If it were possible, then yes, any withholding is considered to be paid evenly.

I suggest checking to see if your 2025 tax situation meets any of the several safe harbors. If not, I'd suggest making a fourth quarter estimated tax payment before 1/15/2026. It may be necessary to complete Form 2210 Schedule AI to eliminate an underpayment penalty if the IRS assesses it.

I am not concerned about the safe harbors. I think Fido will withheld at the time shares are sold. My dividend is not in the Fido system. They are held outside of Fiedlity. I was wondering if I can withdraw the tax obligation out of my account(s) at Fidelity without having to go thru quarterly estimates.

 

[SecondCor521]

I am not concerned about the safe harbors. I think Fido will withheld at the time shares are sold. My dividend is not in the Fido system. They are held outside of Fiedlity. I was wondering if I can withdraw the tax obligation out of my account(s) at Fidelity without having to go thru quarterly estimates.

Right, understood. Again, I don't think what you describe is possible. You could always call Fidelity and ask, but I'm pretty sure they'll agree with me.

 

[Al18]

You could contact your IRA holder and withdraw $1K (for example) and have 100% withheld for Federal tax.

 

[Gumby]

You could even redeposit that amount back into the tIRA within 60 days, although I wouldn't bother since you want to lower your IRA balance.

 

[Still Learning]

I received an unexpected dividend payment of considerable size. I already had my year's taxes estimated, RMD withdrawn and had the estimated taxes for the year withheld from that RMD withdrawal. I know that the withheld tax payments are considered paid evenly throughout the year. What I am not sure of, can a withdrawal from my after-tax account also have taxes withheld and if so, would they also be considered paid evenly throughout the year? The money in that account would be taken from the cash settlement funds rather than actually selling positions, if that makes any difference.

We invest at Vanguard and just setup taxes to be withheld from both retirement and non=retirement accounts as we proceed with larger withdrawals going forward. They had a short process which included access to an IRS form for federal taxes. Had to access our state site to determine state taxes. Prior to implementing, reviewed with our tax preparer who confirmed tax holdings.

 

[Gumby]

I do a preliminary run of my taxes in December and then make a Vanguard tIRA withdrawal and/or Roth convert to true up to as close as I can get to zero owed or refunded. I regularly change the percentages withheld (state and federal) as necessary to do that. In Vanguard, you can now also specify a dollar amount in lieu of a percentage.

 

[pjigar]

I simply add potential capital gains tax from brokerage sell to my next estimated payment to IRS. As long you don't fall short at tax time, IRS doesn't care how the money got to them.

 

[scrabbler1]

I recently asked Fido if they could withhold some taxes when I received a taxable monthly dividend, just to more easily keep me in a safe harbor at the end of the year.. They said they could not.

 

[marko]

While I personally refuse to pay estimateds, why can't you use that avenue to "withold" by just sending in some cash. It's not automatic, but should address the concern.

Or am I misunderstanding the problem?

 

[CRLLS]

While I personally refuse to pay estimateds, why can't you use that avenue to "withold" by just sending in some cash. It's not automatic, but should address the concern.

Or am I misunderstanding the problem?

By doing what you suggested adds 1 more step in the tax return needing to explain the uneven tax payments no? I did that once or twice some 10 years ago. I was hoping to find an easy way to not have to do that and not get flagged for an explanation by the IRS.

I did find some references to being able to have withholdings done on withdrawals from an after-tax retirement account. It seems reasonable that there should be a way I am asking. I have tried the AI chat on Fido with no luck in getting it to see my unique situation. I will keep trying.

 

[imjustawarrior]

I am not concerned about the safe harbors. I think Fido will withheld at the time shares are sold. My dividend is not in the Fido system. They are held outside of Fiedlity. I was wondering if I can withdraw the tax obligation out of my account(s) at Fidelity without having to go thru quarterly estimates.

Why are you not concerned about the safe harbors?

This is what I would do.
1. See if I have met one of the safe harbors. If so, pay the taxes when filing return.
2. Didn't meet safe harbor, I would enough out of IRA and have it all withheld for taxes to meet safe harbor. If I was under 59.5 or didn't want the money to come out of the IRA, I would do a 60 day rollover and put it back.
3. Estimated tax payment and deal with the nasty consequences of the extra paperwork.
4. Ignore it and pay a penalty when I file my taxes. I think the IRS will calculate it for you if need be.

 

[imjustawarrior]

By doing what you suggested adds 1 more step in the tax return needing to explain the uneven tax payments no? I did that once or twice some 10 years ago. I was hoping to find an easy way to not have to do that and not get flagged for an explanation by the IRS.

I did find some references to being able to have withholdings done on withdrawals from an after-tax retirement account. It seems reasonable that there should be a way I am asking. I have tried the AI chat on Fido with no luck in getting it to see my unique situation. I will keep trying.

Is your after-tax retirement account a Roth IRA? If so, you can do a distribution and have the taxes withheld. Then do a 60 day rollover to put it back.

If it is a normal taxable brokerage account, I don't think you can.

 

[cathy63]

While I personally refuse to pay estimateds, why can't you use that avenue to "withold" by just sending in some cash. It's not automatic, but should address the concern.

Or am I misunderstanding the problem?

Estimated payments and withholding are not the same thing and they are treated differently by the IRS.

• If you have actual withholding (someone else sends it to the IRS) then it's treated as if it were paid equally throughout the year.
• If you make estimated payments, then they are treated as paid on the date they are received.

This can make a difference in the amount of underpayment penalties that are owed. Sometimes you can mitigate the additional penalty by filling out extra forms (Form 2210 Sched AI) and sometimes you can't.

 

[cathy63]

I did find some references to being able to have withholdings done on withdrawals from an after-tax retirement account. It seems reasonable that there should be a way I am asking. I have tried the AI chat on Fido with no luck in getting it to see my unique situation. I will keep trying.

Some brokers will do this, some won't. If Fido has already told you they can't or won't, then that's probably an accurate answer for them. You might have better luck with a different broker if you have accounts somewhere else as well.

 

[engineernerd]

I agree with imjustawarrior's post #14.

If you have already had withheld at least the lesser of
(1) 90% of the tax you will owe, or
(2) 100% of what you owed in 2024 / 110% if your 2024 AGI was over $75k Single or $150k MFJ

Then you can just pay the rest of what you owe by April 15, 2026.

If you have not withheld the above minimum, then you should be able to take another distribution from your tIRA and have the bulk of it withheld. Then you will redeposit the full amount of that tIRA distribution within 60 days after taking it out, using funds from a taxable account (your regular brokerage or a bank account). When you make the deposit you should make sure your tIRA custodian knows to characterize your deposit as a 60-day rollover, NOT a regular contribution.

This does assume you haven't done a previous 60-day rollover in the previous 365 days. If you did one on 12/31/2024 then this idea doesn't work.

 

[Gumby]

I agree with imjustawarrior's post #14.

If you have already had withheld at least the lesser of
(1) 90% of the tax you will owe, or
(2) 100% of what you owed in 2024 / 110% if your 2024 AGI was over $75k Single or $150k MFJ

Then you can just pay the rest of what you owe by April 15, 2026.

If you have not withheld the above minimum, then you should be able to take another distribution from your tIRA and have the bulk of it withheld. Then you will redeposit the full amount of that tIRA distribution within 60 days after taking it out, using funds from a taxable account (your regular brokerage or a bank account). When you make the deposit you should make sure your tIRA custodian knows to characterize your deposit as a 60-day rollover, NOT a regular contribution.

This does assume you haven't done a previous 60-day rollover in the previous 365 days. If you did one on 12/31/2024 then this idea doesn't work.

If he's in RMD territory, there is little to be gained by doing the 60 day rollover. Just take a withdrawal of adequate size (remember to gross up for the tax on the withdrawal itself) and have it all withheld.

 

[engineernerd]

If he's in RMD territory, there is little to be gained by doing the 60 day rollover. Just take a withdrawal of adequate size (remember to gross up for the tax on the withdrawal itself) and have it all withheld.

Of course that's an option. He does seem to want to take the money out of taxable for whatever reason, so the rollover is a way to end up with the extra tax withholding effectively coming from his taxable account.

 

[grasshopper]

I could have done a years worth of estimated taxes in the time it took to read this.

 

[SecretlyFI]

If he's in RMD territory, there is little to be gained by doing the 60 day rollover. Just take a withdrawal of adequate size (remember to gross up for the tax on the withdrawal itself) and have it all withheld.

Can you clarify the bit about making sure to gross up for the tax on the withdrawal? I’m wondering, in order to meet RMD requirements, is a “withdrawal if adequate size” = your RMD calculated amount plus tax, or is it = to your RMD calculated amount?

 

[COcheesehead]

Can you clarify the bit about making sure to gross up for the tax on the withdrawal? I’m wondering, in order to meet RMD requirements, is a “withdrawal if adequate size” = your RMD calculated amount plus tax, or is it = to your RMD calculated amount?

The withdrawal adds to income so you have to take that into account and increase the withdrawal accordingly.

 

[SecretlyFI]

Thanks, I get it now.

 

[Gumby]

The withdrawal adds to income so you have to take that into account and increase the withdrawal accordingly.

Exactly. If you want to use $1000 to pay taxes currently owing, you need to actually withdraw 1000/(1-marginal tax rate) in order to cover the taxes on the withdrawal. So if you are in the 22% bracket, you should withdraw 1000/(1-0.22) =$1282, and have it all withheld.