Where do you keep your money for quarterly estimated tax payments?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Topic Author
eosin
Posts: 29
Joined: Tue Jun 09, 2020 12:33 am

Where do you keep your money for quarterly estimated tax payments?

Post by eosin »

I pay quarterly estimated taxes. In the past, I have paid from a checking/savings account at a brick and mortar bank.

Some Bogleheads in old posts have suggested paying quarterly taxes using credit cards to get rewards/cash back.

My tax payments are too large to pay by credit card, but I do wonder if I could make better use of the funds I have sitting around earmarked for tax payments.

I was considering putting the money set aside for taxes into either 1) a high yield savings account (these days high yield isn’t so high), 2) putting the money into a money market fund. With the MMF I am concerned about potential for liquidity fees, redemption freeze, etc.

Curious what other BHs who pay estimated taxes do.

:sharebeer
User avatar
FrugalInvestor
Posts: 5689
Joined: Fri Nov 07, 2008 12:20 am

Re: Where do you keep your money for quarterly estimated tax payments?

Post by FrugalInvestor »

I used to keep it in a Vanguard money market fund but this year have moved to an Ally online savings account. Another option is a penalty-free CD with Marcus Bank. All earn around 1% now, which is 1% better than zero.
Have a plan, stay the course and simplify. Then ignore the noise!
CascadiaSoonish
Posts: 305
Joined: Tue Feb 13, 2018 11:44 am

Re: Where do you keep your money for quarterly estimated tax payments?

Post by CascadiaSoonish »

To my knowledge there aren't any ways to pay with a card that don't charge in the ballpark of 2% to recoup the transaction fees. Would love to be proven wrong, though. In the meantime we just pay it out of checking that's earning something like 0.0001% interest, so we keep most of the near-term funds in taxable brokerage for anything beyond what we can cash flow.
Investtoski
Posts: 31
Joined: Fri Jun 06, 2014 8:17 am

Re: Where do you keep your money for quarterly estimated tax payments?

Post by Investtoski »

Capital One currently @ 1.00%
User avatar
BroIceCream
Posts: 352
Joined: Tue Oct 30, 2018 11:31 pm
Location: California

Re: Where do you keep your money for quarterly estimated tax payments?

Post by BroIceCream »

To keep myself from accidentally spending my estimated tax $ prior to its payment - I buy some CD's at Fidelity that mature a week before each EFTPS payment (I schedule the four CD's at the time I file my taxes, for the coming year). The CD's hold the money in reserve for my payment (and earn a little bit), and I don't have to worry about spending it or moving it from another account or equity/bond position-- it is all pre-scheduled, once a year. They automatically mature, and a week later the money is withdrawn automatically by EFTPS.
User avatar
anon_investor
Posts: 4488
Joined: Mon Jun 03, 2019 1:43 pm

Re: Where do you keep your money for quarterly estimated tax payments?

Post by anon_investor »

FrugalInvestor wrote: Thu Jul 09, 2020 10:13 pm I used to keep it in a Vanguard money market fund but this year have moved to an Ally online savings account. Another option is a penalty-free CD with Marcus Bank. All earn around 1% now, which is 1% better than zero.
+1
jajlrajrf
Posts: 147
Joined: Sun Feb 09, 2020 6:15 pm

Re: Where do you keep your money for quarterly estimated tax payments?

Post by jajlrajrf »

At the beginning of the year I buy t-bills of the appropriate length for the first two payments, and put the remainder in vanguard’s total bond fund.
User avatar
AerialWombat
Posts: 1983
Joined: Tue May 29, 2018 1:07 pm
Location: Cash Canyon / Cashville

Re: Where do you keep your money for quarterly estimated tax payments?

Post by AerialWombat »

Discover high yield savings.
afan
Posts: 5389
Joined: Sun Jul 25, 2010 4:01 pm

Re: Where do you keep your money for quarterly estimated tax payments?

Post by afan »

If you chase credit card bonuses then you could use tax payments to meet the spending requirements. The bonus could make up for the cost of using the card.
If you have a 2% card, then you could do the payment for 1.87% and come out a whopping 0.13% ahead!
The Bank of America premium card gets you a higher cash back, up to 2.625%, I think, on regular purchases.
In today's low rate environment, those moves would generate returns similar to short term interest from banks or mm funds.

Otherwise, it is safe short term rates, barely reaching 1%. Simpler than the credit card maneuver and no risk that they might cut your credit limit below the amount needed to pay the tax.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
User avatar
jfn111
Posts: 1226
Joined: Fri Nov 08, 2013 10:42 pm
Location: Minnesota

Re: Where do you keep your money for quarterly estimated tax payments?

Post by jfn111 »

I like to keep it simple so I have both a Savings account and a checking account setup with my credit union. I keep the tax money in the savings account and transfer to checking when the payment is due.
jebmke
Posts: 11978
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: Where do you keep your money for quarterly estimated tax payments?

Post by jebmke »

I put it all in an AMEX savings account. I have transfers set up to move an amount to checking approx two days before the EFTPS transfer is scheduled.
When you discover that you are riding a dead horse, the best strategy is to dismount.
hudson
Posts: 3554
Joined: Fri Apr 06, 2007 9:15 am

Re: Where do you keep your money for quarterly estimated tax payments?

Post by hudson »

eosin wrote: Thu Jul 09, 2020 10:08 pm Curious what other BHs who pay estimated taxes do.
Just like others above...
I keep the payment money in Amex Bank until estimated tax payment time. Then I transfer it to my local checking account.
IRS Direct Pay will take it from there.

Bottom Line:
For short term money, I want FDIC/NCUA protection.
Laundry_Service
Posts: 240
Joined: Wed Sep 15, 2010 11:52 am

Re: Where do you keep your money for quarterly estimated tax payments?

Post by Laundry_Service »

No set place. I also pay my state and federal with a Bank of America 2.625% cash back card. I pay 1.87% federal and my state for whatever reason does not charge a CC processing fee. Your CC transaction fees are also potentially deductible depending on how you file. It's also a good way to get sign up bonuses.
rkhusky
Posts: 10909
Joined: Thu Aug 18, 2011 8:09 pm

Re: Where do you keep your money for quarterly estimated tax payments?

Post by rkhusky »

Do you keep money earmarked for food, clothing, shelter and/or medical in special accounts? If not, I see no reason to do that for taxes.

Some reasons for keeping money in a separate account, separate from your AA, are that it is a bill that you need to pay at a certain time and there is some penalty for withdrawing the funds from your AA or some extra cost to finding an alternate source of funds or there is no alternate source of funds. An example might be a 529 account that is the sole source of college funding, with the only backstop being loans that have a high interest rate.
hudson
Posts: 3554
Joined: Fri Apr 06, 2007 9:15 am

Re: Where do you keep your money for quarterly estimated tax payments?

Post by hudson »

rkhusky wrote: Fri Jul 10, 2020 10:39 am Do you keep money earmarked for food, clothing, shelter and/or medical in special accounts? If not, I see no reason to do that for taxes.
No...
I either keep my short term money in local checking, local money market, or Amex Bank's savings. Most is at Amex Bank because they are paying more interest; I like it because Amex will transfer funds to my checking account on the same business day if I initiate the transfer before 10:30 AM.
User avatar
midareff
Posts: 7326
Joined: Mon Nov 29, 2010 10:43 am
Location: Biscayne Bay, South Florida

Re: Where do you keep your money for quarterly estimated tax payments?

Post by midareff »

I use an Ally Savings Account (currently 1.0%) to self escrow monthly for IRS Quarterly Estimated, property tax, car and condo insurances.
Topic Author
eosin
Posts: 29
Joined: Tue Jun 09, 2020 12:33 am

Re: Where do you keep your money for quarterly estimated tax payments?

Post by eosin »

FrugalInvestor wrote: Thu Jul 09, 2020 10:13 pm I used to keep it in a Vanguard money market fund but this year have moved to an Ally online savings account. Another option is a penalty-free CD with Marcus Bank. All earn around 1% now, which is 1% better than zero.
Thanks, I had not heard of "penalty free" CDs. I will look into them.
Topic Author
eosin
Posts: 29
Joined: Tue Jun 09, 2020 12:33 am

Re: Where do you keep your money for quarterly estimated tax payments?

Post by eosin »

rkhusky wrote: Fri Jul 10, 2020 10:39 am Do you keep money earmarked for food, clothing, shelter and/or medical in special accounts? If not, I see no reason to do that for taxes.

Some reasons for keeping money in a separate account, separate from your AA, are that it is a bill that you need to pay at a certain time and there is some penalty for withdrawing the funds from your AA or some extra cost to finding an alternate source of funds or there is no alternate source of funds. An example might be a 529 account that is the sole source of college funding, with the only backstop being loans that have a high interest rate.
Thanks, rkhushy and everyone for the suggestions. I agree there is some mental accounting and that it all comes from one pot. :moneybag The only reason for setting aside is the size of my payments (despite maxing out tax deferred space they are an order of magnitude larger than any other bill or expense ), the feeling that I could be earning more interest on the sum, and my desire to be sure the money is available when due.
User avatar
FrugalInvestor
Posts: 5689
Joined: Fri Nov 07, 2008 12:20 am

Re: Where do you keep your money for quarterly estimated tax payments?

Post by FrugalInvestor »

eosin wrote: Fri Jul 10, 2020 2:48 pm
FrugalInvestor wrote: Thu Jul 09, 2020 10:13 pm I used to keep it in a Vanguard money market fund but this year have moved to an Ally online savings account. Another option is a penalty-free CD with Marcus Bank. All earn around 1% now, which is 1% better than zero.
Thanks, I had not heard of "penalty free" CDs. I will look into them.
Marcus Bank (owned by JP Morgan) is now showing only a 7-month CD at 1.00%. The advantage to the CD over an online savings is that the rate is locked in for that period of time where an online savings account can change at any time.

If you were using CDs for storage of quarterly payments you'd want to purchase multiples as you can't cash-in just a portion of a CD. But since you know the amount needed for each quarterly payment that is easy to do. If by some miracle rates went up in the next seven months you could cash them all in and re-buy at the higher rate. Good luck!
Have a plan, stay the course and simplify. Then ignore the noise!
rkhusky
Posts: 10909
Joined: Thu Aug 18, 2011 8:09 pm

Re: Where do you keep your money for quarterly estimated tax payments?

Post by rkhusky »

eosin wrote: Fri Jul 10, 2020 2:54 pm
rkhusky wrote: Fri Jul 10, 2020 10:39 am Do you keep money earmarked for food, clothing, shelter and/or medical in special accounts? If not, I see no reason to do that for taxes.

Some reasons for keeping money in a separate account, separate from your AA, are that it is a bill that you need to pay at a certain time and there is some penalty for withdrawing the funds from your AA or some extra cost to finding an alternate source of funds or there is no alternate source of funds. An example might be a 529 account that is the sole source of college funding, with the only backstop being loans that have a high interest rate.
Thanks, rkhushy and everyone for the suggestions. I agree there is some mental accounting and that it all comes from one pot. :moneybag The only reason for setting aside is the size of my payments (despite maxing out tax deferred space they are an order of magnitude larger than any other bill or expense ), the feeling that I could be earning more interest on the sum, and my desire to be sure the money is available when due.
Understood. If you have a large bill coming due and all your spare money is tied up in retirement accounts, such that you would have to pay a penalty to withdraw or go through the hassle and downside of withdrawing Roth IRA contributions, that would be sufficient reason to set the money aside in a more conservative investment.

But, if you have a sizeable taxable account, with which you could easily cover the bill, even if the market dropped 50% or 90%, then just keep the money invested in your AA.
stupidkid
Posts: 188
Joined: Wed Oct 12, 2011 7:11 pm

Re: Where do you keep your money for quarterly estimated tax payments?

Post by stupidkid »

rkhusky wrote: Fri Jul 10, 2020 4:07 pm
But, if you have a sizeable taxable account, with which you could easily cover the bill, even if the market dropped 50% or 90%, then just keep the money invested in your AA.
I struggle with this concept. I have enough in taxable to cover my tax bill. However my tax bill is approximately 10% of my taxable account.

In a 50% market drop scenario, my tax bill is still the same amount but it becomes 20% of my account, that's a significant portion to sell.

A 50% drop seems more likely than a 50% increase over the same time period. More likely I get a few more % on my tax bill when it's invested, with the risk of it being half wiped out.

While I agree with others that there's probably no need for an emergency fund if your accounts are large enough, I also agree that for short term money - buying a house, paying your tax bill, low risk is better.
dbr
Posts: 34269
Joined: Sun Mar 04, 2007 9:50 am

Re: Where do you keep your money for quarterly estimated tax payments?

Post by dbr »

We used to withdraw money from taxable investments and pay the taxes. There was never anything set aside as such. At one point when the airline credit card game was more worth paying it made sense to cash in on the big-time bonuses by using the card to pay the estimated tax. Now I cover everything by withholding from RMD and don't make estimated tax payments. Oh, and when we had salaries the withholding was just set to cover the bill.
XM16E1
Posts: 34
Joined: Tue Oct 22, 2019 9:34 pm

Re: Where do you keep your money for quarterly estimated tax payments?

Post by XM16E1 »

I just keep them at a local bank. However paying taxes via credit card can have some significant benefits. For example, I paid ~85k today in Federal taxes on my CC. Citi Double Cash with 2% cash back.

The fee to pay with a credit card was 1.87% ($1589.50), making the payment $86589.50. I will earn 2% cash back on that amount working out to $1731.79, immediately putting me ahead $142.29. Not only that but the credit card cash back is not considered taxable income so I in essence "sheltered" $1589.50 from my taxable income AND the fee is tax deductible. With the sheltered $1589.50 into CC cash back and taking the $1589.50 fee as a tax deduction I am saving a 37% tax rate on $1589.50 worth of income, netting me about $588.11 + the extra $142.29 earned by the 0.13% difference the CC fee vs the CC cash back.
hoffse
Posts: 162
Joined: Wed Aug 03, 2016 7:47 am

Re: Where do you keep your money for quarterly estimated tax payments?

Post by hoffse »

I’ve been paying by credit card. We have used it to hit some sign up bonuses, but also take advantage of quarterly spend bonuses and what I am calling “covid bonuses” - all the money banks are throwing at us right now to swipe a card.

For example, PayPal is a quarterly bonuses on Discover right now. That is 5% back. It’s small potato spend (up to $1500 per card), but that’s still a nice deal. One of the processors accepts PayPal.

I have a crate a barrel card that is running a promotion for 5% back on up to $6k of spend anywhere through July. We plan to buy a new desk from them in a couple months, so I will max that out with some tax payments.

If there are still payments left after I have maxed out whatever promotion or sign up bonus I am working on, then everything else goes on the BoA 2.625% back card. It’s a decent positive spread over the fees the processors charge (especially since I can write off the processing fee).

And since you have to pay them every quarter there is an endless supply of spend available for new card bonuses.

There are three processors and each will accept 2 payments per quarter. The IRS official rules on this is that you are only supposed to submit up to 2 payments per quarter in total. Unofficially, it does not appear to be enforced and many churners make up to 6 payments per quarter using 3 processors x 2 tax payments each. YMMV. I have never tried to do more than 2 per quarter because of the broader IRS rule.

As for where I hold the cash, I just keep it in a separate money market account. It does not earn very much, but it’s only there for a few months (tops) because I escrow my taxes as I go.
User avatar
JonnyDVM
Posts: 2352
Joined: Wed Feb 12, 2014 6:51 pm
Location: Atlanta, GA

Re: Where do you keep your money for quarterly estimated tax payments?

Post by JonnyDVM »

midareff wrote: Fri Jul 10, 2020 11:10 am I use an Ally Savings Account (currently 1.0%) to self escrow monthly for IRS Quarterly Estimated, property tax, car and condo insurances.
Yes. Ally. Just take the guaranteed 1% and don’t overthink it.
I’d trade it all for a little more | -C Montgomery Burns
rkhusky
Posts: 10909
Joined: Thu Aug 18, 2011 8:09 pm

Re: Where do you keep your money for quarterly estimated tax payments?

Post by rkhusky »

stupidkid wrote: Fri Jul 10, 2020 8:43 pm
rkhusky wrote: Fri Jul 10, 2020 4:07 pm
But, if you have a sizeable taxable account, with which you could easily cover the bill, even if the market dropped 50% or 90%, then just keep the money invested in your AA.
I struggle with this concept. I have enough in taxable to cover my tax bill. However my tax bill is approximately 10% of my taxable account.

In a 50% market drop scenario, my tax bill is still the same amount but it becomes 20% of my account, that's a significant portion to sell.

A 50% drop seems more likely than a 50% increase over the same time period. More likely I get a few more % on my tax bill when it's invested, with the risk of it being half wiped out.

While I agree with others that there's probably no need for an emergency fund if your accounts are large enough, I also agree that for short term money - buying a house, paying your tax bill, low risk is better.
You readjust your asset allocation (AA) in your tax-advantaged accounts (401k, IRA, etc).

This assumes that you want to maintain a given AA.

As a simple example, assume that your AA is 50/50 and you have $100K of stock in your taxable account and $100K of bonds in your IRA (no 401k). You have a bill due that is $10K. Just before you pay the bill, the stock market drops 50%. So, now your taxable account has $50K of stock, which goes to $40K after you pay the bill. So, you now have $140K total, of which you want $70K in stocks and $70K in bonds according to your AA. So, you sell $30K of bonds in the IRA and buy stocks. Your taxable account now has $40K of stocks and your IRA has $70K of bonds and $30K of stocks. Note that your net is +$20K of stocks (you sold $10K to pay the bill and you bought $30K to rebalance).

Now suppose that you kept each account 50/50 (you want some bonds in taxable in case stocks crash), $50K of stocks and $50K of bonds in each. Again the stock market crashes and you pay the bill with $10K of bonds. So, now you have $25K of stocks and $40K of bonds in taxable and $25K of stocks and $50K of bonds in the IRA, for a total of $140K ($50K of stocks and $90K of bonds). You need to rebalance to have $70K of each. So, you sell $20K of bonds in the IRA to buy stocks. You now have $25K of stocks and $40K of bonds in taxable and $45K of stocks and $30K of bonds in the IRA. Note again that you have a net buy of +$20K of stocks, the same as above.

Alternatively, if there were no tax cost to sell bonds in taxable in the second scenario, you might want to rebalance each account by selling $7.5K of bonds and buying stocks in taxable, along with selling $12.5K of bonds in the IRA and buying stocks. You now have $32.5K of stocks and $32.5K of bonds in the taxable account and $37.5K of stocks and $37.5K of bonds in the IRA (50/50 AA for each). Again, you have sold $20K of bonds to buy stocks ($7.5K + $12.5K).

So, by rebalancing in the IRA, you are not selling stocks low by keeping all stocks in your taxable account. You are actually buying stocks, as you should. And you end up with $140K, no matter how you do it because you lose $50K to the stock crash and $10K to the bill.
User avatar
midareff
Posts: 7326
Joined: Mon Nov 29, 2010 10:43 am
Location: Biscayne Bay, South Florida

Re: Where do you keep your money for quarterly estimated tax payments?

Post by midareff »

JonnyDVM wrote: Sat Jul 11, 2020 6:15 am
midareff wrote: Fri Jul 10, 2020 11:10 am I use an Ally Savings Account (currently 1.0%) to self escrow monthly for IRS Quarterly Estimated, property tax, car and condo insurances.
Yes. Ally. Just take the guaranteed 1% and don’t overthink it.
Yes... between the EFTPS quarterly payments, every 6 months car insurance payments, annual for property tax and condo insurance... it's not like I'm looking to make money on this at today's interest rates.. just cover some CPI-U drift.
User avatar
anon_investor
Posts: 4488
Joined: Mon Jun 03, 2019 1:43 pm

Re: Where do you keep your money for quarterly estimated tax payments?

Post by anon_investor »

midareff wrote: Sat Jul 11, 2020 8:40 am
JonnyDVM wrote: Sat Jul 11, 2020 6:15 am
midareff wrote: Fri Jul 10, 2020 11:10 am I use an Ally Savings Account (currently 1.0%) to self escrow monthly for IRS Quarterly Estimated, property tax, car and condo insurances.
Yes. Ally. Just take the guaranteed 1% and don’t overthink it.
Yes... between the EFTPS quarterly payments, every 6 months car insurance payments, annual for property tax and condo insurance... it's not like I'm looking to make money on this at today's interest rates.. just cover some CPI-U drift.
I use the NP CDs when they are the same or higher than the current savings account rate.
User avatar
midareff
Posts: 7326
Joined: Mon Nov 29, 2010 10:43 am
Location: Biscayne Bay, South Florida

Re: Where do you keep your money for quarterly estimated tax payments?

Post by midareff »

anon_investor wrote: Sat Jul 11, 2020 9:46 am
midareff wrote: Sat Jul 11, 2020 8:40 am
JonnyDVM wrote: Sat Jul 11, 2020 6:15 am
midareff wrote: Fri Jul 10, 2020 11:10 am I use an Ally Savings Account (currently 1.0%) to self escrow monthly for IRS Quarterly Estimated, property tax, car and condo insurances.
Yes. Ally. Just take the guaranteed 1% and don’t overthink it.
Yes... between the EFTPS quarterly payments, every 6 months car insurance payments, annual for property tax and condo insurance... it's not like I'm looking to make money on this at today's interest rates.. just cover some CPI-U drift.
I use the NP CDs when they are the same or higher than the current savings account rate.
Yup... have 3 .... 1.9%, 1.75%, 1.4%, but I don't use them for escrow purposes, just some just in case cash.
Cyanide123
Posts: 342
Joined: Sun May 05, 2019 9:14 am

Re: Where do you keep your money for quarterly estimated tax payments?

Post by Cyanide123 »

Vio Bank - 1.35% Interest for now. Used to be 2.75% a few months ago before the rates dropped again.
User avatar
whodidntante
Posts: 9617
Joined: Thu Jan 21, 2016 11:11 pm
Location: outside the echo chamber

Re: Where do you keep your money for quarterly estimated tax payments?

Post by whodidntante »

XM16E1 wrote: Sat Jul 11, 2020 3:36 am I just keep them at a local bank. However paying taxes via credit card can have some significant benefits. For example, I paid ~85k today in Federal taxes on my CC. Citi Double Cash with 2% cash back.

The fee to pay with a credit card was 1.87% ($1589.50), making the payment $86589.50. I will earn 2% cash back on that amount working out to $1731.79, immediately putting me ahead $142.29. Not only that but the credit card cash back is not considered taxable income so I in essence "sheltered" $1589.50 from my taxable income AND the fee is tax deductible. With the sheltered $1589.50 into CC cash back and taking the $1589.50 fee as a tax deduction I am saving a 37% tax rate on $1589.50 worth of income, netting me about $588.11 + the extra $142.29 earned by the 0.13% difference the CC fee vs the CC cash back.
If you want to kick it up a notch, you can go for credit card sign up bonuses. I just paid 15k in tax using an AmEx Business Cash card that has 2% cash back AND a $500 bonus for spending 15k. And I won't pay it off for a year due to the 0% purchase APR. US Bank recently offered a $750 bonus. Not sure if either are still available, but there is usually something good out there. I usually go for at least one new sign up bonus a quarter. Basically you need to apply for a new credit card 2-3 weeks before you pay taxes so you get it in time. Pay the remainder with the best cash back card you have.

Bam!
User avatar
anon_investor
Posts: 4488
Joined: Mon Jun 03, 2019 1:43 pm

Re: Where do you keep your money for quarterly estimated tax payments?

Post by anon_investor »

midareff wrote: Sat Jul 11, 2020 9:58 am
anon_investor wrote: Sat Jul 11, 2020 9:46 am
midareff wrote: Sat Jul 11, 2020 8:40 am
JonnyDVM wrote: Sat Jul 11, 2020 6:15 am
midareff wrote: Fri Jul 10, 2020 11:10 am I use an Ally Savings Account (currently 1.0%) to self escrow monthly for IRS Quarterly Estimated, property tax, car and condo insurances.
Yes. Ally. Just take the guaranteed 1% and don’t overthink it.
Yes... between the EFTPS quarterly payments, every 6 months car insurance payments, annual for property tax and condo insurance... it's not like I'm looking to make money on this at today's interest rates.. just cover some CPI-U drift.
I use the NP CDs when they are the same or higher than the current savings account rate.
Yup... have 3 .... 1.9%, 1.75%, 1.4%, but I don't use them for escrow purposes, just some just in case cash.
I keep my emergency fund in NP CDs, but when I have the cash for a known large upcoming expense, I also use NP CDs (like an income tax payment).
Cyanide123 wrote: Sat Jul 11, 2020 10:00 am Vio Bank - 1.35% Interest for now. Used to be 2.75% a few months ago before the rates dropped again.
Their website says 1.11%... is your experience with them any good?
User avatar
vineviz
Posts: 8584
Joined: Tue May 15, 2018 1:55 pm

Re: Where do you keep your money for quarterly estimated tax payments?

Post by vineviz »

stupidkid wrote: Fri Jul 10, 2020 8:43 pm
rkhusky wrote: Fri Jul 10, 2020 4:07 pm
But, if you have a sizeable taxable account, with which you could easily cover the bill, even if the market dropped 50% or 90%, then just keep the money invested in your AA.
I struggle with this concept. I have enough in taxable to cover my tax bill. However my tax bill is approximately 10% of my taxable account.

In a 50% market drop scenario, my tax bill is still the same amount but it becomes 20% of my account, that's a significant portion to sell.

A 50% drop seems more likely than a 50% increase over the same time period. More likely I get a few more % on my tax bill when it's invested, with the risk of it being half wiped out.

While I agree with others that there's probably no need for an emergency fund if your accounts are large enough, I also agree that for short term money - buying a house, paying your tax bill, low risk is better.
The thing to remember is that the tax bill is the same amount of $$ no matter what kind of performance your brokerage account has.

But keeping a large sum of money in accounts earning nothing makes you less wealthy than keeping it in accounts earning something. Right?
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
02nz
Posts: 6106
Joined: Wed Feb 21, 2018 3:17 pm

Re: Where do you keep your money for quarterly estimated tax payments?

Post by 02nz »

hoffse wrote: Sat Jul 11, 2020 6:06 am For example, PayPal is a quarterly bonuses on Discover right now. That is 5% back. It’s small potato spend (up to $1500 per card), but that’s still a nice deal. One of the processors accepts PayPal.
I just did this on two Discover cards. Chase Freedom typically also has PayPal as a 5X category once a year, it hasn't happened yet in '20 so maybe it's Q4 this year. The processor that takes PayPal is Payusatax.com, they charge 1.96%, so (with the bonus categories capped at $1500) you can pay a net of $1470 or so on each card.
Cyanide123
Posts: 342
Joined: Sun May 05, 2019 9:14 am

Re: Where do you keep your money for quarterly estimated tax payments?

Post by Cyanide123 »

anon_investor wrote: Sat Jul 11, 2020 10:16 am
midareff wrote: Sat Jul 11, 2020 9:58 am
anon_investor wrote: Sat Jul 11, 2020 9:46 am
midareff wrote: Sat Jul 11, 2020 8:40 am
JonnyDVM wrote: Sat Jul 11, 2020 6:15 am

Yes. Ally. Just take the guaranteed 1% and don’t overthink it.
Yes... between the EFTPS quarterly payments, every 6 months car insurance payments, annual for property tax and condo insurance... it's not like I'm looking to make money on this at today's interest rates.. just cover some CPI-U drift.
I use the NP CDs when they are the same or higher than the current savings account rate.
Yup... have 3 .... 1.9%, 1.75%, 1.4%, but I don't use them for escrow purposes, just some just in case cash.
I keep my emergency fund in NP CDs, but when I have the cash for a known large upcoming expense, I also use NP CDs (like an income tax payment).
Cyanide123 wrote: Sat Jul 11, 2020 10:00 am Vio Bank - 1.35% Interest for now. Used to be 2.75% a few months ago before the rates dropped again.
Their website says 1.11%... is your experience with them any good?
Probably decreased again. Same experience as any other bank. I initiate transactions through other bank accounts because if i initiate a transfer through them, the funds take longer to clear. But really... They are just like any other online bank.
stupidkid
Posts: 188
Joined: Wed Oct 12, 2011 7:11 pm

Re: Where do you keep your money for quarterly estimated tax payments?

Post by stupidkid »

rkhusky wrote: Sat Jul 11, 2020 6:26 am You readjust your asset allocation (AA) in your tax-advantaged accounts (401k, IRA, etc).

This assumes that you want to maintain a given AA.

So, by rebalancing in the IRA, you are not selling stocks low by keeping all stocks in your taxable account. You are actually buying stocks, as you should. And you end up with $140K, no matter how you do it because you lose $50K to the stock crash and $10K to the bill.
Very good point. I keep forgetting the basic rebalance principle, exchange bonds in tax advantaged to access an equivalent amount from a stock fund in taxable. Effectively not selling any stocks, just bonds which are essentially cash/fixed income.

Well this tax bill is due next week so I won't bother trying this out but this can be my goal for the next quarter.

Thanks!
User avatar
anon_investor
Posts: 4488
Joined: Mon Jun 03, 2019 1:43 pm

Re: Where do you keep your money for quarterly estimated tax payments?

Post by anon_investor »

Cyanide123 wrote: Sat Jul 11, 2020 10:42 am
anon_investor wrote: Sat Jul 11, 2020 10:16 am
midareff wrote: Sat Jul 11, 2020 9:58 am
anon_investor wrote: Sat Jul 11, 2020 9:46 am
midareff wrote: Sat Jul 11, 2020 8:40 am

Yes... between the EFTPS quarterly payments, every 6 months car insurance payments, annual for property tax and condo insurance... it's not like I'm looking to make money on this at today's interest rates.. just cover some CPI-U drift.
I use the NP CDs when they are the same or higher than the current savings account rate.
Yup... have 3 .... 1.9%, 1.75%, 1.4%, but I don't use them for escrow purposes, just some just in case cash.
I keep my emergency fund in NP CDs, but when I have the cash for a known large upcoming expense, I also use NP CDs (like an income tax payment).
Cyanide123 wrote: Sat Jul 11, 2020 10:00 am Vio Bank - 1.35% Interest for now. Used to be 2.75% a few months ago before the rates dropped again.
Their website says 1.11%... is your experience with them any good?
Probably decreased again. Same experience as any other bank. I initiate transactions through other bank accounts because if i initiate a transfer through them, the funds take longer to clear. But really... They are just like any other online bank.
Really? It is 1 business day to clear for me if initialed from Ally Bank.
Topic Author
eosin
Posts: 29
Joined: Tue Jun 09, 2020 12:33 am

Re: Where do you keep your money for quarterly estimated tax payments?

Post by eosin »

Cyanide123 wrote: Sat Jul 11, 2020 10:42 am
anon_investor wrote: Sat Jul 11, 2020 10:16 am
midareff wrote: Sat Jul 11, 2020 9:58 am
anon_investor wrote: Sat Jul 11, 2020 9:46 am
midareff wrote: Sat Jul 11, 2020 8:40 am

Yes... between the EFTPS quarterly payments, every 6 months car insurance payments, annual for property tax and condo insurance... it's not like I'm looking to make money on this at today's interest rates.. just cover some CPI-U drift.
I use the NP CDs when they are the same or higher than the current savings account rate.
Yup... have 3 .... 1.9%, 1.75%, 1.4%, but I don't use them for escrow purposes, just some just in case cash.
I keep my emergency fund in NP CDs, but when I have the cash for a known large upcoming expense, I also use NP CDs (like an income tax payment).
Cyanide123 wrote: Sat Jul 11, 2020 10:00 am Vio Bank - 1.35% Interest for now. Used to be 2.75% a few months ago before the rates dropped again.
Their website says 1.11%... is your experience with them any good?
Probably decreased again. Same experience as any other bank. I initiate transactions through other bank accounts because if i initiate a transfer through them, the funds take longer to clear. But really... They are just like any other online bank.
+1 My understanding is that for shorter transfer times (regardless of the bank), it is better to “push” money out from the outside bank, rather than to “pull” money in.
yolli71
Posts: 422
Joined: Fri May 20, 2011 9:53 am

Re: Where do you keep your money for quarterly estimated tax payments?

Post by yolli71 »

I use Ally Savings.
bluebolt
Posts: 1286
Joined: Sat Jan 14, 2017 9:01 am

Re: Where do you keep your money for quarterly estimated tax payments?

Post by bluebolt »

FrugalInvestor wrote: Thu Jul 09, 2020 10:13 pm I used to keep it in a Vanguard money market fund but this year have moved to an Ally online savings account. Another option is a penalty-free CD with Marcus Bank. All earn around 1% now, which is 1% better than zero.
After taxes it might only be 0.5% better than zero.
User avatar
MrBobcat
Posts: 574
Joined: Fri Jan 11, 2019 5:19 pm

Re: Where do you keep your money for quarterly estimated tax payments?

Post by MrBobcat »

I know I'm an outlier, but I just keep it with the IRS. One big estimated payment up front. Prepay real estate and state estimated taxes the same way. I know I forgo some interest earnings but I just don't care. I'm one of those who paid off my cheap mortgage early too. :D

I'm not one for fine tuning the little things for maximum return (I know there are those who will disagree re the mortgage). I try and focus on what I consider the big things. Am I living below my means, am I saving enough for my goals and do I have a reasonable asset allocation with a diversified asset base.
Topic Author
eosin
Posts: 29
Joined: Tue Jun 09, 2020 12:33 am

Re: Where do you keep your money for quarterly estimated tax payments?

Post by eosin »

hudson wrote: Fri Jul 10, 2020 8:42 am
eosin wrote: Thu Jul 09, 2020 10:08 pm Curious what other BHs who pay estimated taxes do.
Just like others above...
I keep the payment money in Amex Bank until estimated tax payment time. Then I transfer it to my local checking account.
IRS Direct Pay will take it from there.

Bottom Line:
For short term money, I want FDIC/NCUA protection.
OP here. Thanks. It’s odd I didn’t realize AMEX had a HY savings account. I previously looked at Ally and Marcus. I’ll check out AMEX too.
Topic Author
eosin
Posts: 29
Joined: Tue Jun 09, 2020 12:33 am

Re: Where do you keep your money for quarterly estimated tax payments?

Post by eosin »

hoffse wrote: Sat Jul 11, 2020 6:06 am I’ve been paying by credit card. We have used it to hit some sign up bonuses, but also take advantage of quarterly spend bonuses and what I am calling “covid bonuses” - all the money banks are throwing at us right now to swipe a card.

For example, PayPal is a quarterly bonuses on Discover right now. That is 5% back. It’s small potato spend (up to $1500 per card), but that’s still a nice deal. One of the processors accepts PayPal.

I have a crate a barrel card that is running a promotion for 5% back on up to $6k of spend anywhere through July. We plan to buy a new desk from them in a couple months, so I will max that out with some tax payments.

If there are still payments left after I have maxed out whatever promotion or sign up bonus I am working on, then everything else goes on the BoA 2.625% back card. It’s a decent positive spread over the fees the processors charge (especially since I can write off the processing fee). Hi

And since you have to pay them every quarter there is an endless supply of spend available for new card bonuses.

There are three processors and each will accept 2 payments per quarter. The IRS official rules on this is that you are only supposed to submit up to 2 payments per quarter in total. Unofficially, it does not appear to be enforced and many churners make up to 6 payments per quarter using 3 processors x 2 tax payments each. YMMV. I have never tried to do more than 2 per quarter because of the broader IRS rule.

As for where I hold the cash, I just keep it in a separate money market account. It does not earn very much, but it’s only there for a few months (tops) because I escrow my taxes as I go.
OP here. I was not aware there were different processors. If I broke my payments up I could definitely put them on a credit card for the cash rewards. Which processors have you used?
abyan
Posts: 610
Joined: Mon Jun 23, 2014 8:51 pm

Re: Where do you keep your money for quarterly estimated tax payments?

Post by abyan »

I do the same. Penalty-free CDs at Ally. Did pretty well with my tax money over the last year. And yes, I like to keep my estimated taxes in a separate account, I just feel safer to come mailing the money and possibly spending it.
Cyanide123
Posts: 342
Joined: Sun May 05, 2019 9:14 am

Re: Where do you keep your money for quarterly estimated tax payments?

Post by Cyanide123 »

anon_investor wrote: Sat Jul 11, 2020 12:28 pm
Cyanide123 wrote: Sat Jul 11, 2020 10:42 am
anon_investor wrote: Sat Jul 11, 2020 10:16 am
midareff wrote: Sat Jul 11, 2020 9:58 am
anon_investor wrote: Sat Jul 11, 2020 9:46 am

I use the NP CDs when they are the same or higher than the current savings account rate.
Yup... have 3 .... 1.9%, 1.75%, 1.4%, but I don't use them for escrow purposes, just some just in case cash.
I keep my emergency fund in NP CDs, but when I have the cash for a known large upcoming expense, I also use NP CDs (like an income tax payment).
Cyanide123 wrote: Sat Jul 11, 2020 10:00 am Vio Bank - 1.35% Interest for now. Used to be 2.75% a few months ago before the rates dropped again.
Their website says 1.11%... is your experience with them any good?
Probably decreased again. Same experience as any other bank. I initiate transactions through other bank accounts because if i initiate a transfer through them, the funds take longer to clear. But really... They are just like any other online bank.
Really? It is 1 business day to clear for me if initialed from Ally Bank.
Because you're initiating through ally. If you initiate it through vio, they have a longer time before the funds are available.
User avatar
anon_investor
Posts: 4488
Joined: Mon Jun 03, 2019 1:43 pm

Re: Where do you keep your money for quarterly estimated tax payments?

Post by anon_investor »

Cyanide123 wrote: Mon Jul 13, 2020 1:10 am
anon_investor wrote: Sat Jul 11, 2020 12:28 pm
Cyanide123 wrote: Sat Jul 11, 2020 10:42 am
anon_investor wrote: Sat Jul 11, 2020 10:16 am
midareff wrote: Sat Jul 11, 2020 9:58 am

Yup... have 3 .... 1.9%, 1.75%, 1.4%, but I don't use them for escrow purposes, just some just in case cash.
I keep my emergency fund in NP CDs, but when I have the cash for a known large upcoming expense, I also use NP CDs (like an income tax payment).
Cyanide123 wrote: Sat Jul 11, 2020 10:00 am Vio Bank - 1.35% Interest for now. Used to be 2.75% a few months ago before the rates dropped again.
Their website says 1.11%... is your experience with them any good?
Probably decreased again. Same experience as any other bank. I initiate transactions through other bank accounts because if i initiate a transfer through them, the funds take longer to clear. But really... They are just like any other online bank.
Really? It is 1 business day to clear for me if initialed from Ally Bank.
Because you're initiating through ally. If you initiate it through vio, they have a longer time before the funds are available.
I was just trying to say that Ally is fast on the transfers. But I guess Vio is slow, but pays higher interest.
kaneohe
Posts: 6786
Joined: Mon Sep 22, 2008 12:38 pm

Re: Where do you keep your money for quarterly estimated tax payments?

Post by kaneohe »

XM16E1 wrote: Sat Jul 11, 2020 3:36 am I just keep them at a local bank. However paying taxes via credit card can have some significant benefits. For example, I paid ~85k today in Federal taxes on my CC. Citi Double Cash with 2% cash back.

The fee to pay with a credit card was 1.87% ($1589.50), making the payment $86589.50. I will earn 2% cash back on that amount working out to $1731.79, immediately putting me ahead $142.29. Not only that but the credit card cash back is not considered taxable income so I in essence "sheltered" $1589.50 from my taxable income AND the fee is tax deductible. With the sheltered $1589.50 into CC cash back and taking the $1589.50 fee as a tax deduction I am saving a 37% tax rate on $1589.50 worth of income, netting me about $588.11 + the extra $142.29 earned by the 0.13% difference the CC fee vs the CC cash back.
Is this your personal income tax that you are paying w/ cc?
User avatar
dratkinson
Posts: 5205
Joined: Thu Jul 26, 2007 6:23 pm
Location: Centennial CO

Re: Where do you keep your money for quarterly estimated tax payments?

Post by dratkinson »

eosin wrote: Thu Jul 09, 2020 10:08 pm...
My tax payments are too large to pay by credit card,
Option. Create a credit on your CC account.

Call your CC and see if you are allowed to...
--Prepay your CC tax payment bill. (If you've prepaid, then shouldn't go over monthly CC limit.)
--Then pay your tax bill by CC a few days later, after CC prepayment withdrawn.


I remember doing this once. Wanted 2% cashback, but purchase would put me over CC monthly limit.
--Called CC CSR to see what I could do.
--CC CSR said I could prepay my CC bill to give more wiggle room under my monthly CC limit.
--CC CSR set up prepayment for me, but noticed later that telephone option exists to do same.

Telephone option. Since my CC bill is set up on ABP (automatic bill payment plan), it is a simple matter to say "Prepay $xxxx from my checking account set up on ABP."



Now, uncle sugar and his nephews at state charging a fee to pay taxes by CC... that's a different issue.
d.r.a., not dr.a. | I'm a novice investor, you are forewarned.
hudson
Posts: 3554
Joined: Fri Apr 06, 2007 9:15 am

Re: Where do you keep your money for quarterly estimated tax payments?

Post by hudson »

Thanks Dratkinson!
great work-around!
JonnyB
Posts: 688
Joined: Sun Jan 19, 2020 5:28 pm

Re: Where do you keep your money for quarterly estimated tax payments?

Post by JonnyB »

vineviz wrote: Sat Jul 11, 2020 10:33 am The thing to remember is that the tax bill is the same amount of $$ no matter what kind of performance your brokerage account has.

But keeping a large sum of money in accounts earning nothing makes you less wealthy than keeping it in accounts earning something. Right?
Liability matching is a pretty good plan. Keep enough cash for short term liabilities. A forced sale of stock when the market it down makes you less wealthy also. You have to get your cash for current bills from somewhere.
Post Reply