Timing of IRA withholding?

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secondmoment
Posts: 12
Joined: Sun Oct 04, 2015 12:33 pm

Timing of IRA withholding?

Post by secondmoment » Wed Mar 25, 2020 1:23 pm

I've been retired for a couple of years now, and my income sources are withdrawals from a traditional IRA at Vanguard and Social Security payments. When I make each monthly IRA withdrawal I have federal and California tax withheld to cover both the IRA income as well as Social Security.

Given the steep decline in the IRA's value over the past month or so, I'm taking a beat to think about the timing of withholding. Part of my brain says the market will surely have made some recovery by summer, or the end of the year, so why not just withdraw the amount I need paid to me each month for now, and have the withholding taken out later? My tax preparer says that, unlike estimated tax payments, withholding doesn't have to be spread evenly across the year.

The other part of my brain says that this amounts to market timing, which I swore off when I went to Bogle-style low-cost index funds. What if the market goes even lower by summer or fall? Under this thinking, I'd just keep having withholding taken out each month as I go, even though it hurts to do right now. (I am though holding off on discretionary spending for the time being to keep my IRA withdrawals as low as possible.)

What would you do if you were in my shoes? Have the withholding taken out next week when I make my monthly IRA withdrawal? Or wait? (And if I wait -- until when?)

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FiveK
Posts: 8397
Joined: Sun Mar 16, 2014 2:43 pm

Re: Timing of IRA withholding?

Post by FiveK » Wed Mar 25, 2020 1:37 pm

If your tIRA withdrawal amounts this year will be lower than you planned on 1-Jan, your withholding percentage might be lower as well - depends on whether it will all be taxed at the same marginal rate or not. Have you looked at decreasing the percentage withheld if that would be appropriate?

fabdog
Posts: 943
Joined: Wed Jan 16, 2013 1:59 pm
Location: Williamsburg VA

Re: Timing of IRA withholding?

Post by fabdog » Wed Mar 25, 2020 2:01 pm

What would you do if you were in my shoes? Have the withholding taken out next week when I make my monthly IRA withdrawal? Or wait? (And if I wait -- until when?)
Your fundamental assumption is things will be better later this year... what if it's not? What if later this year things are down another 20%. Your tax preparer is correct, doesn't have to be taken out evenly... just by the end of the year. So if you wait, you're effectively making a bet the market will be higher later... you might be right, and then again you might not... but time marches on. So if you go this route you'd better establish some criteria now for what you do later... or else you'll be doing this in Dec if the markets continue to slide

Mike

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