RMD + Federal taxes

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Almost there
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RMD + Federal taxes

Post by Almost there » Tue Jul 10, 2018 7:26 pm

All my funds are being held at Vanguard. I just contacted them with regard to the percentage of withholding federal taxes when withdrawing my RMD for 2018. They indicated that the minimum is 10% which is too high for me. I don't want to pay 10% and then receive it back later when I file my federal income taxes..

Is it ok to pay the income tax in March when I file my federal income taxes or will I be penalized by the IRS because it is too late? Do I have any other options?

Almost there

kaneohe
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Re: RMD + Federal taxes

Post by kaneohe » Tue Jul 10, 2018 7:32 pm

see if you can meet one of the safe harbors http://fairmark.com/estimate/whomust.htm
1) you pay >=90% of this yrs taxes by w/h and estimated taxes
2) you pay >=100% of last yrs taxes by w/h and estimated taxes (110% if AGI >150K)
3) you owe less than 1K

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Mlm
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Re: RMD + Federal taxes

Post by Mlm » Tue Jul 10, 2018 7:34 pm

I set up my RMD online and was able to indicate 0% federal and X% State withholding.

Gill
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Re: RMD + Federal taxes

Post by Gill » Tue Jul 10, 2018 7:35 pm

Minimum is zero withholding.
Gill

Almost there
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Re: RMD + Federal taxes

Post by Almost there » Tue Jul 10, 2018 7:38 pm

I know that I can indicate zero withholding, however, my question then was:
Is it ok to pay the income tax in March when I file my federal income taxes or will I be penalized by the IRS because it is too late? Do I have any other options?
Almost there

Gill
Posts: 4748
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Location: Florida

Re: RMD + Federal taxes

Post by Gill » Tue Jul 10, 2018 7:44 pm

Almost there wrote:
Tue Jul 10, 2018 7:38 pm
I know that I can indicate zero withholding, however, my question then was:
Is it ok to pay the income tax in March when I file my federal income taxes or will I be penalized by the IRS because it is too late? Do I have any other options?
Almost there
As long as you meet the IRS safe harbor rules you’re fine.
Gill

neilpilot
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Location: Memphis area

Re: RMD + Federal taxes

Post by neilpilot » Tue Jul 10, 2018 7:44 pm

Almost there wrote:
Tue Jul 10, 2018 7:38 pm
I know that I can indicate zero withholding, however, my question then was:
Is it ok to pay the income tax in March when I file my federal income taxes or will I be penalized by the IRS because it is too late? Do I have any other options?
Almost there
I would say that, if you won't otherwise meet safe harbor as indicated by Kanaohe above, you need to make an appropriate quarterly estimated payment in the same quarter you receive the RMD. If that happens to be the 4th quarter, then it's due by 1/15/19.

Silk McCue
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Re: RMD + Federal taxes

Post by Silk McCue » Tue Jul 10, 2018 7:51 pm

You can adjust your withholding from another income source such as a pension or Social Security to meet the obligation.

Cheers

Almost there
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Re: RMD + Federal taxes

Post by Almost there » Tue Jul 10, 2018 8:25 pm

This will be my first year of RMD, and with the new tax structure it is rather difficult for me to estimate how much I will have to pay for taxes. I ran the mortgage calculator using 2017 info as to:
Tax exempt interest
Ordinary dividends
Qualified dividends
Short and long term capital gains

It came up with $1051 due for taxes. I will have to look at the numbers for the above and see where I stand as to 2018.

kaneohe wrote:
see if you can meet one of the safe harbors http://fairmark.com/estimate/whomust.htm
1) you pay >=90% of this yrs taxes by w/h and estimated taxes
2) you pay >=100% of last yrs taxes by w/h and estimated taxes (110% if AGI >150K)
3) you owe less than 1K
Thank you for the website. I copied the following from this website which applies to me.

There's a related rule. You don't have to pay estimated tax if all of the following are true:
You had no tax liability for the previous year.
You were a U.S. citizen or resident for the entire year.
Your tax year covered a 12-month period.

Silk McCue wrote:
You can adjust your withholding from another income source such as a pension or Social Security to meet the obligation.
I don’t receive a pension, but I could have $200 withheld monthly from my Social Security, which I think would suffice.

Does everyone think that is ok?

Silk McCue
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Joined: Thu Feb 25, 2016 7:11 pm

Re: RMD + Federal taxes

Post by Silk McCue » Tue Jul 10, 2018 8:37 pm

Having the additional withheld via SS withholding is the perfect way to do this. Just adjust at the first of next year to the correct amount to be withheld to meet next years RMDs throughout the full year.

Cheers

Almost there
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Location: Arizona USA

Re: RMD + Federal taxes

Post by Almost there » Tue Jul 10, 2018 8:41 pm

Thank you Silk, I will do that.

kaneohe
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Re: RMD + Federal taxes

Post by kaneohe » Tue Jul 10, 2018 9:51 pm

Almost there wrote:
Tue Jul 10, 2018 8:25 pm
This will be my first year of RMD, and with the new tax structure it is rather difficult for me to estimate how much I will have to pay for taxes. I ran the mortgage calculator using 2017 info as to:
Tax exempt interest
Ordinary dividends
Qualified dividends
Short and long term capital gains

It came up with $1051 due for taxes. I will have to look at the numbers for the above and see where I stand as to 2018.

kaneohe wrote:
see if you can meet one of the safe harbors http://fairmark.com/estimate/whomust.htm
1) you pay >=90% of this yrs taxes by w/h and estimated taxes
2) you pay >=100% of last yrs taxes by w/h and estimated taxes (110% if AGI >150K)
3) you owe less than 1K
Thank you for the website. I copied the following from this website which applies to me.

There's a related rule. You don't have to pay estimated tax if all of the following are true:
You had no tax liability for the previous year.
You were a U.S. citizen or resident for the entire year.
Your tax year covered a 12-month period.

............................................
Be careful when you apply the rule in the last paragraph. No tax liability for previous yr......means no tax on your income for previous yr. NOT that you didn't owe in April. You said the mortgage calculator using 2017 income came up w/ $1051 for tax due. Your actual tax in 2017 was probably higher. ......so the last paragraph wouldn't get you off the hook.

However if this is not your first yr of RMDs so income in 2017 similar to 2018, you might be helped by the safe harbor 3) above...... <1K due. You are over that but any penalty is based on the amount over 1K....an interest penalty something like 4% of the overage based on timing so more like 2% on the amount.....if you are over by $100,penalty about so nothing to sweat about. .....but w/h is the best way deal w/ it as you have decided.

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CABob
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Re: RMD + Federal taxes

Post by CABob » Tue Jul 10, 2018 10:07 pm

Consider taking all or a portion of your RMD late in the year with taxes withheld from it. That way even if it is more tax that you will owe at least the IRS only has it for 3 months or so.
Bob

carolinaman
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Location: North Carolina

Re: RMD + Federal taxes

Post by carolinaman » Wed Jul 11, 2018 7:40 am

CABob wrote:
Tue Jul 10, 2018 10:07 pm
Consider taking all or a portion of your RMD late in the year with taxes withheld from it. That way even if it is more tax that you will owe at least the IRS only has it for 3 months or so.
+1. I always do a portion of my RMD in December. This gives me the ability to adjust my Fed and St withholding once I have good estimate of my tax liability for the year. Unlike paying quarterly estimated taxes, there is no penalty for withholding all your taxes from RMDs in December.

pshonore
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Re: RMD + Federal taxes

Post by pshonore » Wed Jul 11, 2018 7:43 am

Almost there wrote:
Tue Jul 10, 2018 8:25 pm
This will be my first year of RMD, and with the new tax structure it is rather difficult for me to estimate how much I will have to pay for taxes. I ran the mortgage calculator using 2017 info as to:
Tax exempt interest
Ordinary dividends
Qualified dividends
Short and long term capital gains

It came up with $1051 due for taxes. I will have to look at the numbers for the above and see where I stand as to 2018.

kaneohe wrote:
see if you can meet one of the safe harbors http://fairmark.com/estimate/whomust.htm
1) you pay >=90% of this yrs taxes by w/h and estimated taxes
2) you pay >=100% of last yrs taxes by w/h and estimated taxes (110% if AGI >150K)
3) you owe less than 1K
Thank you for the website. I copied the following from this website which applies to me.

There's a related rule. You don't have to pay estimated tax if all of the following are true:
You had no tax liability for the previous year.
You were a U.S. citizen or resident for the entire year.
Your tax year covered a 12-month period.

Silk McCue wrote:
You can adjust your withholding from another income source such as a pension or Social Security to meet the obligation.
I don’t receive a pension, but I could have $200 withheld monthly from my Social Security, which I think would suffice.

Does everyone think that is ok?
SS withholding works fine but it is somewhat different. There are four choices; 7%,10%, 12% or 22% of your benefit. No flat $ amounts, etc.

Almost there
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Location: Arizona USA

Re: RMD + Federal taxes

Post by Almost there » Wed Jul 11, 2018 7:55 am

Thank you pshonore. 7% will work for me for the rest of the year. Just trying to figure out if I can send the W-4 to Social Security or have to bring it to their office?

Almost there
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Location: Arizona USA

Re: RMD + Federal taxes

Post by Almost there » Wed Jul 11, 2018 3:18 pm

Went to the Social Security office this morning and dropped off my W-4 form in an envelope in their box.

Silk McCue
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Re: RMD + Federal taxes

Post by Silk McCue » Wed Jul 11, 2018 3:20 pm

Almost there wrote:
Wed Jul 11, 2018 3:18 pm
Went to the Social Security office this morning and dropped off my W-4 form in an envelope in their box.
Excellent!

Cheers

Almost there
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Location: Arizona USA

Re: RMD + Federal taxes

Post by Almost there » Sun Jul 15, 2018 3:00 pm

Surprise ending!
Dropped off the W-4 form last Wednesday. When I checked my online Social Security A/C today, I noticed that the 7% withdrawal has already been activated. That was FAST.

Silk McCue
Posts: 1361
Joined: Thu Feb 25, 2016 7:11 pm

Re: RMD + Federal taxes

Post by Silk McCue » Sun Jul 15, 2018 3:19 pm

That's great. Good to know that your local office is that efficient!

Cheers

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