Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

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Lynette
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Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by Lynette » Sun Dec 31, 2017 4:45 pm

I was wondering how other retirees pay their taxes if they don't have earned income but only pensions, SS and RMDs. I retired at the end of 2016 at the age of 73 and in 2017 I grossly overestimated my taxes partially as I inadvertently deducted a Roth portion of my 401K. I think I will be getting a refund of about $10,000! I've been researching threads on how others do it. From what I understand these are some of the options if you do not have earned income.

1. Don't withhold any taxes during the year and later in the year deduct enough tax from RMDs which will cover taxes for the whole year.
2. Don't have any taxes withheld but pay estimated taxes quarterly.
3. Have tax withdrawn from each pension, SS and RMDs

I'm having difficulty calculating how much to have deducted from my different sources of income. I know that W 4's will change in 2018 but this should not affect the methodology. I have two different pensions, additional small amount of money from a former employer overseas, SS and RMDs and a small amount of dividends and capital gains from taxable accounts. I have 25% of my SS withheld, and I'm struggling with the other pensions. This year I am going to do QCDs so will likely withdraw the RMDs later in the year.

Thanks,

Lynette

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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by jebmke » Sun Dec 31, 2017 4:50 pm

I pay estimated taxes using EFTPS. I set up the first three payments on automatic then I make the last payment, if necessary, based on a preliminary tax return estimated in December.
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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by sport » Sun Dec 31, 2017 4:53 pm

We have money withheld from a pension. When I make my RMDs, I look at how much will be withheld and also at last year's taxes. I then have enough withheld from the RMD to equal last year's taxes and thus qualify for the safe harbor. For example, If my last year's tax was $5000 and the withholding will be $2000, I have $3000 withheld from my RMD. I have to use withholding for my state income tax because Vanguard will not withhold for my state. I see no reason to make estimated payments if I do not have to.

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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by CAsage » Sun Dec 31, 2017 4:56 pm

W-4 won't matter if you are not employed? And way overdue there, Lynette. I don't think it matters how you choose to pay your taxes, as long as you track it carefully to avoid free loans to Uncle Sam. You could do 100% via RMD (which has the lovely advantage of paying late, but not being late). Or, sit down sometime this winter, and do a solid estimate of your 2018 taxes. Calculate the effective total percent (tax due divided by total income), and have about that much withheld from each pension and Social Security. Then RMD any remainders in December (like 12/1/18, don't wait til the end due to .... things happen).

My current taxes are paid by 20% withholding (and I don't get to choose that) by Megacorp, and I RMD the rest. The important part is to keep track of how much is paid (maybe twice a year, check your plan). Or take it out of the biggest income stream.... Enjoy your retirement, you earned it!
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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by Silk McCue » Sun Dec 31, 2017 4:58 pm

If your annual income is predictable I would have all the taxes withheld from Social Security. Having it occur without your intervention and from a single source will simplify your management of this as the years roll on. You have better things to think about and enjoy doing.

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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by DrGoogle2017 » Sun Dec 31, 2017 4:58 pm

I pay estimated taxes. Technically I don’t pay any taxes unless I do Roth conversion.

Lynette
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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by Lynette » Sun Dec 31, 2017 5:08 pm

Thanks for the replies. I worked till 73 but spent a fortune on overseas travel so I enjoyed life. My pensions grew and most of my money is in tax deferred so that increases my RMDs. My accounting firm has done analysis for me on several occasions and told me it is a wash if I do Roth conversions or not as in the 2017 my marginal tax rate was 28% and effective tax rate is 20%. Medicare also added another bracket for IRMAA so if I do Roth conversions, I will likely have to pay more IRMAA.

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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by retiredjg » Sun Dec 31, 2017 5:12 pm

Lynette wrote:
Sun Dec 31, 2017 4:45 pm

3. Have tax withdrawn from each pension, SS and RMDs
I do something along this line. I found out early that I could withhold enough from the pension to cover the pension and SS, so now I have nothing withheld for taxes from SS. I'm not old enough for RMDs, but I have 15% or so withheld from every IRA withdrawal.

By your second full year of retirement, you should be getting a reasonable idea of how much your effective tax is (tax per overall income). For me it is in the neighborhood of 15% even though I'm in the 25% bracket. I've found if I withhold about 15% from IRA and about 20% from pension and none from SS, I come out reasonably close.

Since tax rates have dropped about 3%, I'll lower withholding by 2% this coming year and hope I get in the neighborhood. The following year, I'll fine tune it if needed.


I would consider paying estimated taxes a burden. I like the withholding method because it is easy.

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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by HueyLD » Sun Dec 31, 2017 5:21 pm

I agree with Retiredjg that withholding is much easier for a retiree.

Just pick the biggest income source and have enough withheld to avoid the underpayment penalty. Keep in mind that your state may have its own rules on underpayment penalty.

Lynette
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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by Lynette » Sun Dec 31, 2017 6:13 pm

Part of the problem I have is that I have two W 4's for my pensions and in 2017 and I had one exemption. I need to have additional tax withdrawn from each one. SS only has two possibilities for withholding with the maximums being 15% or 25% which is about 2/3 of all the federal tax I owe. For state tax, I owe less than $2000 a year as my pensions are not taxed. I'm thinking that I might simply do one estimated tax return at the beginning of 2018 and be done with state tax.

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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by Chip » Sun Dec 31, 2017 6:18 pm

Lynette wrote:
Sun Dec 31, 2017 6:13 pm
Part of the problem I have is that I have two W 4's for my pensions and in 2017 and I had one exemption. I need to have additional tax withdrawn from each one. SS only has two possibilities for withholding with the maximums being 15% or 25% which is about 2/3 of all the federal tax I owe. For state tax, I owe less than $2000 a year as my pensions are not taxed. I'm thinking that I might simply do one estimated tax return at the beginning of 2018 and be done with state tax.
You can normally withhold (at least for federal purposes) any amount you want from a pension. Line 3 of the W-4P is "Additional amount, if any, you want withheld from each pension or annuity payment.". Social Security is not as flexible on withholding.

If it were me, I'd withhold everything from ONE pension for reasons of simplicity.

Lynette
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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by Lynette » Sun Dec 31, 2017 6:51 pm

Chip wrote:
Sun Dec 31, 2017 6:18 pm
Lynette wrote:
Sun Dec 31, 2017 6:13 pm
Part of the problem I have is that I have two W 4's for my pensions and in 2017 and I had one exemption. I need to have additional tax withdrawn from each one. SS only has two possibilities for withholding with the maximums being 15% or 25% which is about 2/3 of all the federal tax I owe. For state tax, I owe less than $2000 a year as my pensions are not taxed. I'm thinking that I might simply do one estimated tax return at the beginning of 2018 and be done with state tax.
You can normally withhold (at least for federal purposes) any amount you want from a pension. Line 3 of the W-4P is "Additional amount, if any, you want withheld from each pension or annuity payment.". Social Security is not as flexible on withholding.

If it were me, I'd withhold everything from ONE pension for reasons of simplicity.
Last year, my 401K was with my former employer and they did not deduct enough tax for the RMD either which resulted in further estimated tax. So this year I have to juggle withholding from two pensions, Social Security, and RMDs from my IRAs at Vanguard and Fidelity. I want to do QCDs on both as well as RMDs on each. This is why I thought it might be simpler not to do any withholding from pensions or Social Security and then deduct tax for the whole year from my RMDs in about October.

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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by Alan S. » Sun Dec 31, 2017 7:13 pm

Withhold all federal taxes from RMD taken in the fall. Amounts to about 20-25% of gross RMD.

Simple and do not have to change withholding instructions of wait for forms to be processed. Withholding allows you to hold on to your tax money longer and the only deadline is 12/31.

Rest of RMD transferred to taxable brokerage account with same custodian.

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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by Gill » Sun Dec 31, 2017 7:20 pm

I would find withholding a nuisance, particularly the problem of having to make changes with the payor. It is much easier to make or change four quarterly payments through EFTPS.
GILL

Lynette
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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by Lynette » Sun Dec 31, 2017 7:38 pm

Thanks everyone. I will discuss this with my accountant. As I am going to take QCDs, the remaining balance of my RMDs may not be sufficient to cover my total tax liability for pensions, SS and other odds and ends. The method I've been using obviously is not working.

Thanks again.

Lynette

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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by tomd37 » Sun Dec 31, 2017 8:26 pm

Lynette - As an older retired couple in our early 80's our income primarily consists of my military pension, our social security benefits, interest, and our RMDs from our traditional IRAs. Upon retirement in 2002 we established a withholding amount from my military pension plus a specific dollar amount. We also established a percentage amount to be withheld from each of our social security benefits (7, 10, 15, and 25% are the allowable percentages). Those withholdings have remained constant over the retirement years. My variable is the amount of federal tax to be withheld from our RMDs.

As we now start the new year of 2018 I already have a very good idea of what our taxable income is going to be for 2018. And so when it comes time to take our RMD in October of 2018 I will tell Vanguard what percentage of that RMD amount I want withheld for federal tax. My percentage to be withheld is based on what my tax liability is then estimated to be compared what is already planned to be withheld for the entire year from my other sources of income. I try to plan the percentage to be such that I owe the IRS the smallest amount possible without getting a refund.

I do the latter because of the increasing amount of tax fraud that is going on when people steal your identity and submit a fraudulent tax return. In doing so when I end up submitting my return in early March each year there could be the possibility that my return would be rejected if someone stole one of our SS numbers and already had submitted a return. If that were the case I would have to wait an extended period of time to get any refund due us. By having to pay a small amount I have removed that possibility and I can submit my return with the small amount due with it.

Wishing everyone a happy and prosperous 2018. :moneybag
Tom D.

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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by littlebird » Sun Dec 31, 2017 8:37 pm

I like the flexibility of deciding on a withholding amount from our RMDs near the end of the year. This year, because of very high medical expenses, (and comparatively modest income) our tax obligation will be <$1000, so I had nothing withheld.

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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by Lynette » Sun Dec 31, 2017 8:40 pm

tomd37 wrote:
Sun Dec 31, 2017 8:26 pm
Lynette - As an older retired couple in our early 80's our income primarily consists of my military pension, our social security benefits, interest, and our RMDs from our traditional IRAs. Upon retirement in 2002 we established a withholding amount from my military pension plus a specific dollar amount. We also established a percentage amount to be withheld from each of our social security benefits (7, 10, 15, and 25% are the allowable percentages). Those withholdings have remained constant over the retirement years. My variable is the amount of federal tax to be withheld from our RMDs.

As we now start the new year of 2018 I already have a very good idea of what our taxable income is going to be for 2018. And so when it comes time to take our RMD in October of 2018 I will tell Vanguard what percentage of that RMD amount I want withheld for federal tax. My percentage to be withheld is based on what my tax liability is then estimated to be compared what is already planned to be withheld for the entire year from my other sources of income. I try to plan the percentage to be such that I owe the IRS the smallest amount possible without getting a refund.

I do the latter because of the increasing amount of tax fraud that is going on when people steal your identity and submit a fraudulent tax return. In doing so when I end up submitting my return in early March each year there could be the possibility that my return would be rejected if someone stole one of our SS numbers and already had submitted a return. If that were the case I would have to wait an extended period of time to get any refund due us. By having to pay a small amount I have removed that possibility and I can submit my return with the small amount due with it.

Wishing everyone a happy and prosperous 2018. :moneybag
Tom, thank you for your comprehensive reply. In 2018, my situation should be more stable and be a guideline for the future. In 2017 I also got a bonus which added an additional complication.

It's nearly 2018. Happy New Year to everyone.

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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by Gnirk » Mon Jan 01, 2018 2:36 am

We have taxes withheld from his SS, his RMD, my SS, my small pension, and my small RMD. Usually the total is enough to cover the taxes on interest, dividends, and capital gains as well. (90% of our investments are in taxable portfolios). However, this year we are also paying estimated taxes because we both had EE bonds maturing and some large capital gains.

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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by AlwaysaQ » Mon Jan 01, 2018 11:57 am

For federal tax I have withholding from my pension and my annuity. Like many others I determine the amount I still need to withhold to make the safe harbor threshold for the next year's filing. Late in the year after making QCDs I determine the percentage I need withheld from the RMD to meet the safe harbor.

For the state I make one estimated payment in April to cover the whole year.

Lynette
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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by Lynette » Mon Jan 01, 2018 12:40 pm

For those who fill in W4's for pensions, how do you calculate the amount to be withheld? I know it will change in 2018. The problem I have with both my pension(s) and the RMD taken last year is that the corporation assumed that that was my only taxable income (I think). So for example, my one pension is about $20,000 p.a. I'm single so I can claim one exemption. If I fill in the form like that, I'm assuming that the assumption is that my whole income is $20,000 so likely no tax will be withheld. In fact the total tax for the year is more than $20,000 including pensions, SS and RMDs. So how do I fudge the two W4's to get the correct federal withholding which is should be something close to $5,000 p.a.

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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by technovelist » Mon Jan 01, 2018 12:45 pm

I have the simplest method of all.

I pay no taxes because I keep my income below the taxable limits. :sharebeer
In theory, theory and practice are identical. In practice, they often differ.

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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by vested1 » Mon Jan 01, 2018 1:00 pm

sport wrote:
Sun Dec 31, 2017 4:53 pm
We have money withheld from a pension. When I make my RMDs, I look at how much will be withheld and also at last year's taxes. I then have enough withheld from the RMD to equal last year's taxes and thus qualify for the safe harbor. For example, If my last year's tax was $5000 and the withholding will be $2000, I have $3000 withheld from my RMD. I have to use withholding for my state income tax because Vanguard will not withhold for my state. I see no reason to make estimated payments if I do not have to.
I'm struggling with what to withhold, if any from SS, which starts next year. We deduct a straight 20% from withdrawals currently in a dwindling fixed annuity at Fidelity. 15% federal and 5% State, which works well. With all of the rest of the portfolio at VG, having no withdrawals yet, the statement in bold above caught my attention. Does anyone know if Fidelity withholds State taxes from an IRA if they asked to do so in California?

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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by kaneohe » Mon Jan 01, 2018 1:16 pm

Lynette wrote:
Mon Jan 01, 2018 12:40 pm
For those who fill in W4's for pensions, how do you calculate the amount to be withheld? I know it will change in 2018. The problem I have with both my pension(s) and the RMD taken last year is that the corporation assumed that that was my only taxable income (I think). So for example, my one pension is about $20,000 p.a. I'm single so I can claim one exemption. If I fill in the form like that, I'm assuming that the assumption is that my whole income is $20,000 so likely no tax will be withheld. In fact the total tax for the year is more than $20,000 including pensions, SS and RMDs. So how do I fudge the two W4's to get the correct federal withholding which is should be something close to $5,000 p.a.
This is the same problem when you are working but also have outside investments. The employer sees only the wages you earn and withholds accordingly. You are the only one who knows how much should be withheld so start by doing a tax return for the yr of interest. You now know how much should be withheld. You can then add an additional amount to be withheld per "pay period" on the W4 (line 6) so things work out as you wish.

Lynette
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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by Lynette » Mon Jan 01, 2018 1:34 pm

kaneohe wrote:
Mon Jan 01, 2018 1:16 pm
Lynette wrote:
Mon Jan 01, 2018 12:40 pm
For those who fill in W4's for pensions, how do you calculate the amount to be withheld? I know it will change in 2018. The problem I have with both my pension(s) and the RMD taken last year is that the corporation assumed that that was my only taxable income (I think). So for example, my one pension is about $20,000 p.a. I'm single so I can claim one exemption. If I fill in the form like that, I'm assuming that the assumption is that my whole income is $20,000 so likely no tax will be withheld. In fact the total tax for the year is more than $20,000 including pensions, SS and RMDs. So how do I fudge the two W4's to get the correct federal withholding which is should be something close to $5,000 p.a.
This is the same problem when you are working but also have outside investments. The employer sees only the wages you earn and withholds accordingly. You are the only one who knows how much should be withheld so start by doing a tax return for the yr of interest. You now know how much should be withheld. You can then add an additional amount to be withheld per "pay period" on the W4 (line 6) so things work out as you wish.
Thanks but how do I know how much additional tax should be withheld as I don't know how much they have calculated I owe? Even if I claim 0 allowances, I still don't know how much the corporation will figure that I owe. I have been thinking of claiming 0 allowances and asking for an additional $400 period to be withheld but I don't know if this will be correct. Are there tables that show how these taxes are calculated? I pay tax on 85% of my social security and have 25% withheld. The only choices in the upper brackets are 15 and 25%. I think my effective tax rate will be slightly lower.

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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by RudyS » Mon Jan 01, 2018 1:50 pm

sport wrote:
Sun Dec 31, 2017 4:53 pm
We have money withheld from a pension. When I make my RMDs, I look at how much will be withheld and also at last year's taxes. I then have enough withheld from the RMD to equal last year's taxes and thus qualify for the safe harbor. For example, If my last year's tax was $5000 and the withholding will be $2000, I have $3000 withheld from my RMD. I have to use withholding for my state income tax because Vanguard will not withhold for my state. I see no reason to make estimated payments if I do not have to.
Same here. I just leave the pension withholding wherever it is, and use withholding on the RMD to adjust at end of year to cover safe harbor. State withholding is high enough that I don't need to adjust for state tax on my RMD.

Enjoy your retirement, happy new year!

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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by BL » Mon Jan 01, 2018 1:57 pm

Lynette wrote:
Mon Jan 01, 2018 1:34 pm
kaneohe wrote:
Mon Jan 01, 2018 1:16 pm
Lynette wrote:
Mon Jan 01, 2018 12:40 pm
For those who fill in W4's for pensions, how do you calculate the amount to be withheld? I know it will change in 2018. The problem I have with both my pension(s) and the RMD taken last year is that the corporation assumed that that was my only taxable income (I think). So for example, my one pension is about $20,000 p.a. I'm single so I can claim one exemption. If I fill in the form like that, I'm assuming that the assumption is that my whole income is $20,000 so likely no tax will be withheld. In fact the total tax for the year is more than $20,000 including pensions, SS and RMDs. So how do I fudge the two W4's to get the correct federal withholding which is should be something close to $5,000 p.a.
This is the same problem when you are working but also have outside investments. The employer sees only the wages you earn and withholds accordingly. You are the only one who knows how much should be withheld so start by doing a tax return for the yr of interest. You now know how much should be withheld. You can then add an additional amount to be withheld per "pay period" on the W4 (line 6) so things work out as you wish.
Thanks but how do I know how much additional tax should be withheld as I don't know how much they have calculated I owe? Even if I claim 0 allowances, I still don't know how much the corporation will figure that I owe. I have been thinking of claiming 0 allowances and asking for an additional $400 period to be withheld but I don't know if this will be correct. Are there tables that show how these taxes are calculated? I pay tax on 85% of my social security and have 25% withheld. The only choices in the upper brackets are 15 and 25%. I think my effective tax rate will be slightly lower.
The more allowances, the less they withheld.

So if you claimed 20 allowances (not recommending this), they would not withhold anything unless you told them how much additional you wanted withheld. (Extreme example just for emphasis!)

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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by mouses » Mon Jan 01, 2018 2:02 pm

Each year when I file my taxes in April, I know what I paid in taxes, so since things don't change much and my taxes, before the new law, were low, I just make one estimated tax payment for the next whole year then. Next year I will probably do the same, since although my taxes will increase they will still overall be low.

If they were a significant amount, I would probably make four estimated tax payments a year. Much simpler than messing with a bunch of withholdings.

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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by tibbitts » Mon Jan 01, 2018 2:06 pm

I think a loan to uncle sam in a 1% interest rate world isn't that big a deal, even up to the OP's $10k (it's spread out over the year so more like $5k.)

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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by kaneohe » Mon Jan 01, 2018 2:09 pm

Lynette wrote:
Mon Jan 01, 2018 1:34 pm
kaneohe wrote:
Mon Jan 01, 2018 1:16 pm
Lynette wrote:
Mon Jan 01, 2018 12:40 pm
For those who fill in W4's for pensions, how do you calculate the amount to be withheld? I know it will change in 2018. The problem I have with both my pension(s) and the RMD taken last year is that the corporation assumed that that was my only taxable income (I think). So for example, my one pension is about $20,000 p.a. I'm single so I can claim one exemption. If I fill in the form like that, I'm assuming that the assumption is that my whole income is $20,000 so likely no tax will be withheld. In fact the total tax for the year is more than $20,000 including pensions, SS and RMDs. So how do I fudge the two W4's to get the correct federal withholding which is should be something close to $5,000 p.a.
This is the same problem when you are working but also have outside investments. The employer sees only the wages you earn and withholds accordingly. You are the only one who knows how much should be withheld so start by doing a tax return for the yr of interest. You now know how much should be withheld. You can then add an additional amount to be withheld per "pay period" on the W4 (line 6) so things work out as you wish.
Thanks but how do I know how much additional tax should be withheld as I don't know how much they have calculated I owe? Even if I claim 0 allowances, I still don't know how much the corporation will figure that I owe. I have been thinking of claiming 0 allowances and asking for an additional $400 period to be withheld but I don't know if this will be correct. Are there tables that show how these taxes are calculated? I pay tax on 85% of my social security and have 25% withheld. The only choices in the upper brackets are 15 and 25%. I think my effective tax rate will be slightly lower.
I am sure there are such tables and I am sure there are people who know how to use them. Not being one of those and not wanting to rely on a
HR person when working, I discovered that the way to do it is to wait for the first period so you know what the result is for your circumstance.
Then take the remaining tax you want withheld, divide by number of remaining periods to get the additional amount you want per period. This assumes you leave everything else alone and are just requesting more/period. If you adjust allowances at the same time, good luck to you :happy

Lynette
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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by Lynette » Mon Jan 01, 2018 2:16 pm

tibbitts wrote:
Mon Jan 01, 2018 2:06 pm
I think a loan to uncle sam in a 1% interest rate world isn't that big a deal, even up to the OP's $10k (it's spread out over the year so more like $5k.)
Maybe. My accountant estimated that I would owe about $24,000 in taxes in 2017. In future years it may be more as I did some tax-loss harvesting thanks to instructions from Livesoft in 2017. My pensions will be worth less with inflation but as I move more to taxable I will have to pay more on dividends as I move RMDs there. In addition my RMDs will grow as I age!

The reason I have to pay so much tax is I have pensions and most of my money is in tax-deferred accounts.

Lynette
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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by Lynette » Mon Jan 01, 2018 2:19 pm

mouses wrote:
Mon Jan 01, 2018 2:02 pm
Each year when I file my taxes in April, I know what I paid in taxes, so since things don't change much and my taxes, before the new law, were low, I just make one estimated tax payment for the next whole year then. Next year I will probably do the same, since although my taxes will increase they will still overall be low.

If they were a significant amount, I would probably make four estimated tax payments a year. Much simpler than messing with a bunch of withholdings.
Am I correct that I do not have to pay estimated taxes for pensions and SS if all of my tax payment for the year come from RMDs?

Lynette
Posts: 1746
Joined: Sun Jul 27, 2014 9:47 am

Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by Lynette » Mon Jan 01, 2018 2:20 pm

kaneohe wrote:
Mon Jan 01, 2018 2:09 pm
Lynette wrote:
Mon Jan 01, 2018 1:34 pm
kaneohe wrote:
Mon Jan 01, 2018 1:16 pm
Lynette wrote:
Mon Jan 01, 2018 12:40 pm
For those who fill in W4's for pensions, how do you calculate the amount to be withheld? I know it will change in 2018. The problem I have with both my pension(s) and the RMD taken last year is that the corporation assumed that that was my only taxable income (I think). So for example, my one pension is about $20,000 p.a. I'm single so I can claim one exemption. If I fill in the form like that, I'm assuming that the assumption is that my whole income is $20,000 so likely no tax will be withheld. In fact the total tax for the year is more than $20,000 including pensions, SS and RMDs. So how do I fudge the two W4's to get the correct federal withholding which is should be something close to $5,000 p.a.
This is the same problem when you are working but also have outside investments. The employer sees only the wages you earn and withholds accordingly. You are the only one who knows how much should be withheld so start by doing a tax return for the yr of interest. You now know how much should be withheld. You can then add an additional amount to be withheld per "pay period" on the W4 (line 6) so things work out as you wish.
Thanks but how do I know how much additional tax should be withheld as I don't know how much they have calculated I owe? Even if I claim 0 allowances, I still don't know how much the corporation will figure that I owe. I have been thinking of claiming 0 allowances and asking for an additional $400 period to be withheld but I don't know if this will be correct. Are there tables that show how these taxes are calculated? I pay tax on 85% of my social security and have 25% withheld. The only choices in the upper brackets are 15 and 25%. I think my effective tax rate will be slightly lower.
I am sure there are such tables and I am sure there are people who know how to use them. Not being one of those and not wanting to rely on a
HR person when working, I discovered that the way to do it is to wait for the first period so you know what the result is for your circumstance.
Then take the remaining tax you want withheld, divide by number of remaining periods to get the additional amount you want per period. This assumes you leave everything else alone and are just requesting more/period. If you adjust allowances at the same time, good luck to you :happy
Thanks! 2017 is the first year I retired and messed things up - well I get a $10,000 refund!

kaneohe
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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by kaneohe » Mon Jan 01, 2018 2:35 pm

Lynette wrote:
Mon Jan 01, 2018 2:19 pm
mouses wrote:
Mon Jan 01, 2018 2:02 pm
Each year when I file my taxes in April, I know what I paid in taxes, so since things don't change much and my taxes, before the new law, were low, I just make one estimated tax payment for the next whole year then. Next year I will probably do the same, since although my taxes will increase they will still overall be low.

If they were a significant amount, I would probably make four estimated tax payments a year. Much simpler than messing with a bunch of withholdings.
Am I correct that I do not have to pay estimated taxes for pensions and SS if all of my tax payment for the year come from RMDs?
you can pay by withholding or estimated taxes or a combination of the two. Withholding has the advantage that timing is not critical since all withholding considered to have been paid evenly throughout the yr (or "quarters"). Some folks like to get fancy by withholding at yr end.
Estimated taxes , for simplicity, should be paid in equal quarterly payments but can, if needed, be more flexible since you only depend on yourself to make the payment, and not some bureaucratic entity to carry out your instructions. I suppose if you do online stuff, that withholding can also be flexible.

kaneohe
Posts: 4821
Joined: Mon Sep 22, 2008 12:38 pm

Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by kaneohe » Mon Jan 01, 2018 2:40 pm

Lynette wrote:
Mon Jan 01, 2018 2:20 pm
kaneohe wrote:
Mon Jan 01, 2018 2:09 pm
Lynette wrote:
Mon Jan 01, 2018 1:34 pm
kaneohe wrote:
Mon Jan 01, 2018 1:16 pm
Lynette wrote:
Mon Jan 01, 2018 12:40 pm
For those who fill in W4's for pensions, how do you calculate the amount to be withheld? I know it will change in 2018. The problem I have with both my pension(s) and the RMD taken last year is that the corporation assumed that that was my only taxable income (I think). So for example, my one pension is about $20,000 p.a. I'm single so I can claim one exemption. If I fill in the form like that, I'm assuming that the assumption is that my whole income is $20,000 so likely no tax will be withheld. In fact the total tax for the year is more than $20,000 including pensions, SS and RMDs. So how do I fudge the two W4's to get the correct federal withholding which is should be something close to $5,000 p.a.
This is the same problem when you are working but also have outside investments. The employer sees only the wages you earn and withholds accordingly. You are the only one who knows how much should be withheld so start by doing a tax return for the yr of interest. You now know how much should be withheld. You can then add an additional amount to be withheld per "pay period" on the W4 (line 6) so things work out as you wish.
Thanks but how do I know how much additional tax should be withheld as I don't know how much they have calculated I owe? Even if I claim 0 allowances, I still don't know how much the corporation will figure that I owe. I have been thinking of claiming 0 allowances and asking for an additional $400 period to be withheld but I don't know if this will be correct. Are there tables that show how these taxes are calculated? I pay tax on 85% of my social security and have 25% withheld. The only choices in the upper brackets are 15 and 25%. I think my effective tax rate will be slightly lower.
I am sure there are such tables and I am sure there are people who know how to use them. Not being one of those and not wanting to rely on a
HR person when working, I discovered that the way to do it is to wait for the first period so you know what the result is for your circumstance.
Then take the remaining tax you want withheld, divide by number of remaining periods to get the additional amount you want per period. This assumes you leave everything else alone and are just requesting more/period. If you adjust allowances at the same time, good luck to you :happy
Thanks! 2017 is the first year I retired and messed things up - well I get a $10,000 refund!
A slightly more complex problem then since you can only instruct IRS to withhold more/period and not less........so you need to adjust your allowances to withhold less .............so that you are underwithholding.........then you can fine tune by withholding more. Best to make a large allowance in one step rather than trying to fine tune w/ allowances. Perhaps somebody at the pension company can give you an idea of what the withholding will be with a particular allowance.

Chip
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Joined: Wed Feb 21, 2007 4:57 am

Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by Chip » Mon Jan 01, 2018 3:24 pm

I think kaneohe's suggested method of adjusting your withholding is the simplest. If you have one pension that could cover all of your withholding, file a W-4P for that pension with some arbitrary number of exemptions. Wait until you see what the actual W/H from that filing is, then file a new W-4P with additional extra withholding specified to get you to the right number by year end. If it were me I would cancel withholding on everything else if you can withhold enough from a single pension.

Each spring, after you complete your tax return, adjust withholding to your new desired number by filing a new W-4P. Rather than worry about trying to calculate how much you'll owe, just hit the safe harbor of 100% of last year's tax (110% if over a certain income threshold).

I managed withholding from a pension for my mother this way for several years. I had filed a W-4P with 10 exemptions, which made the tax withheld zero. Then I filed another W-4P with the added monthly amount on Line 3. I'd file a new W-4P each year, always with 10 exemptions but with a new "added amount".

Lynette
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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by Lynette » Mon Jan 01, 2018 4:45 pm

Thanks Chip and Kaneohe. With nothing very much to do on a New Year's day, I found the IRS table for employers - glad I'm not an employer. Page 45 of Pub 15 has the method one can use to calculate with holdings.This can be based on the period of payment (e.g. monthly, annually). Then based on one's filing status (single, married etc.), one deducts the number of allowances multiplied by the allowance amount. Then its like the regular tax table brackets. So now I know how much the corporation withholds and so I deducted this from the amount of tax they should have withheld and that is how much I need to add. I'm going to claim 0 allowances.

Thanks,

Lynette

ubermax
Posts: 1428
Joined: Tue Feb 11, 2014 2:19 pm
Location: Connecticut

Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by ubermax » Mon Jan 01, 2018 4:48 pm

Roughly 98% of our taxable income is derived from pension, SS, & RMD ; on January 1 , we know those amounts for the coming year and can develop our preliminary annual budget - since the new tax bill is now finalized , I can estimate our tax liability for 2018 with a high degree of accuracy along with completing our tax return for 2017 .

Monthly deposits to the "estimated quarterly tax" bucket is no different than deposits to the utilities and mortgage buckets - we have no withholding from any of our inflows .

Good question from Lynette and a good discussion that followed .

Happy New Year !!!

ubermax
Posts: 1428
Joined: Tue Feb 11, 2014 2:19 pm
Location: Connecticut

Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by ubermax » Mon Jan 01, 2018 4:50 pm

Roughly 98% of our taxable income is derived from pension, SS, & RMD ; on January 1 , we know those amounts for the coming year and can develop our preliminary annual budget - since the new tax bill is now finalized , I can estimate our tax liability for 2018 with a high degree of accuracy along with completing our tax return for 2017 .

Monthly deposits to the "estimated quarterly tax" bucket is no different than deposits to the utilities and mortgage buckets - we have no withholding from any of our inflows .

Good question from Lynette and a good discussion that followed .

Happy New Year !!!

kaneohe
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Joined: Mon Sep 22, 2008 12:38 pm

Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by kaneohe » Mon Jan 01, 2018 5:21 pm

Lynette wrote:
Mon Jan 01, 2018 4:45 pm
Thanks Chip and Kaneohe. With nothing very much to do on a New Year's day, I found the IRS table for employers - glad I'm not an employer. Page 45 of Pub 15 has the method one can use to calculate with holdings.This can be based on the period of payment (e.g. monthly, annually). Then based on one's filing status (single, married etc.), one deducts the number of allowances multiplied by the allowance amount. Then its like the regular tax table brackets. So now I know how much the corporation withholds and so I deducted this from the amount of tax they should have withheld and that is how much I need to add. I'm going to claim 0 allowances.

Thanks,

Lynette
pretty good achievement for day 1 in 2018!! might want to compare your real deductions in 2017 w/ your theory of how things work as a double check.

retiredjg
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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by retiredjg » Mon Jan 01, 2018 5:29 pm

Lynette wrote:
Mon Jan 01, 2018 1:34 pm
I think my effective tax rate will be slightly lower.
Since you have an idea of what your effective tax rate will be, why not just withhold that percentage from each of your income streams until you get a better handle on it all?

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cheese_breath
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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by cheese_breath » Mon Jan 01, 2018 5:38 pm

All my income (pensions, SS, IRA withdrawals) goes into my checking account. From there some is used to pay living expenses, some goes into savings & investments, and some goes to pay quarterly estimated taxes. I don't have anything withdrawn from anything. It all goes into the checking account, and I distribute it from there.
The surest way to know the future is when it becomes the past.

Lynette
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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by Lynette » Mon Jan 01, 2018 6:14 pm

retiredjg wrote:
Mon Jan 01, 2018 5:29 pm
Lynette wrote:
Mon Jan 01, 2018 1:34 pm
I think my effective tax rate will be slightly lower.
Since you have an idea of what your effective tax rate will be, why not just withhold that percentage from each of your income streams until you get a better handle on it all?
Don't be so logical. :D My accountant did a comparison on a 1040 on what she thought the comparison of my taxes would be between 2016 and 2017. I have an appointment with her early in March when I should have all of the information from Vanguard and Fidelity. Then I can get a better feel of how things stand.

Part of the reason for all of this hyper-activity is that I'm going to restart my Spanish and photography classes at a community center in the second week of January. As my personality requires me to do well, I won't have time to play around with taxes.

Lynette
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Re: Retirees: No earned income, how do you pay tax for pensions, SS and RMDs

Post by Lynette » Mon Jan 01, 2018 6:18 pm

kaneohe wrote:
Mon Jan 01, 2018 5:21 pm
Lynette wrote:
Mon Jan 01, 2018 4:45 pm
Thanks Chip and Kaneohe. With nothing very much to do on a New Year's day, I found the IRS table for employers - glad I'm not an employer. Page 45 of Pub 15 has the method one can use to calculate with holdings.This can be based on the period of payment (e.g. monthly, annually). Then based on one's filing status (single, married etc.), one deducts the number of allowances multiplied by the allowance amount. Then its like the regular tax table brackets. So now I know how much the corporation withholds and so I deducted this from the amount of tax they should have withheld and that is how much I need to add. I'm going to claim 0 allowances.

Thanks,

Lynette
pretty good achievement for day 1 in 2018!! might want to compare your real deductions in 2017 w/ your theory of how things work as a double check.
:D Thanks for your help. I'm just playing around and don't take this too seriously. I'ts back to the real world on the second week of January when I have to go to my classes at the community center.

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