Tax withheld from RMDs vs Estimated Tax payments

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  • #13854
    wj
    Participant

    Is it true that:

    1) RMDs from several IRAs can be of any size and taken at any time during the year so long as the total for the year meets or exceeds the total required RMD?

    and

    2) If the total of the tax withheld from any of all of these RMDs amounts to the total of your estimated income tax for the year, then none of the four estimated income tax vouchers/payments need to be filed/paid for that tax year?

    #13859
    Alan S.
    Participant

    1) Yes, that is correct. But there are some timing requirements if you plan to do any QCDs to reduce taxes on your RMD. And if you plan to convert in an RMD year, you must complete your RMD prior to converting.

    2) Yes, withholding from RMDs can usually replace the need to pay quarterly estimated taxes if your RMD is large enough in relation to the amount needed to be paid in to avoid underpayment penalties. One popular method is to take the bulk of your RMD later in the year when you have figured out the amount you need to withhold. A large advantage to withholding is that it is treated as paid equally throughout the year regardless of when you actually take your RMD. Estimates are only credited when they are actually paid. So you can hang on to your money longer when you pay by withholding later in the year. It is also a simpler and easier way to pay.

    #13862
    wj
    Participant

    Thank you Alan. I have been missing out on this – it will certainly make life a bit simpler and easier.
    wj

    #14171
    Natalia Donna
    Participant

    Yes, that is correct. But there are some timing requirements if you plan to do any QCDs to reduce taxes on your RMD. And if you plan to convert in an RMD year, you must complete your RMD prior to converting.

    #15057
    bill18163
    Participant

    I thought that estimated payments are due before the deadline each quarter or you will pay a penalty because they were not paid on time. If you waited let’s say till December to pay your RMD for that year wouldn’t you incur penalty’s for not paying your estimated amounts on time? Or are we assuming that the tax on the RMD is more than what you owe in estimated taxes within that year? I’m having a hard time following this. Am I right or wrong?

    #15059
    Alan S.
    Participant

    The prior posts addressed withholding for tax payments, and the timing of withholding is immaterial. Quarterly estimates are different, and they are only credited when actually paid. But for those incurring significant late year income such as a December RMD, there is an option to file Form 2210 AI, in which you state your income for each quarter, deductions for each quarter, and if done correctly it will eliminate much of any underpayment penalty. That said, the form is complex and many people wish to avoid dealing with it.

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