How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

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morsetaper2
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How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by morsetaper2 »

I am planning for upcoming retirement and it suddenly dawned on me I won't be working for a bi-weekly paycheck from my employer anymore. I'll be living off my savings; a taxable acct, R/O & Roth IRA's (no pension). How do I fill out and pay my taxes?

Will I have to work on my taxes starting in Feb and pay them before the April tax deadline using H&R Block Deluze + State every year like I have for years now. Or do I pay quarterly? I honestly have no clue. For my first Year in retirement I'll have about 3 months income from my job. Then starting in April I'm on my own, living off of my various accts. No pension.

How are taxes prepared and paid when you live off of a mix of income (salary & investment) in the first year. Then thereafter purely investment income. Then years later I'll also have SS income.

How is it done? Honest question I just never thought of.
Last edited by morsetaper2 on Tue Dec 20, 2022 12:37 pm, edited 4 times in total.
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cheese_breath
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by cheese_breath »

I pay estimated taxes every quarter.
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Monster99
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by Monster99 »

Taxes are deducted from my pension monthly.
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Stinky
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by Stinky »

I also pay estimated taxes every quarter.

I project my income for the upcoming year as I close out my tax return for the prior year. Then, I update my “tax” spreadsheet with the tax brackets for the upcoming year to estimate my tax liability. I’ll further update my calculations if something unexpected happens to my income or taxes during the year

I pay enough estimated taxes to fit into the safe harbor, but always plan to owe a little when I file my tax return.
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smectym
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by smectym »

Quarterly estimated is generally best for us. It keeps us on our toes. If one has a simple, transparent and predictable tax situation, I’m sure just settling up annually can work well also.
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morsetaper2
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by morsetaper2 »

cheese_breath wrote: Wed Jan 19, 2022 10:05 pm I pay estimated taxes every quarter.
Do you use the usual tax software for consumers? I have always used H&R Block Deluxe + State. Have never recalled seeing anything in there regarding quarterly estimated taxes. So I assume you prepare quarterly estimated taxes then square it all up before the April tax deadline?
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by Gryphon »

My retirement income is a mix of pension payments & IRA withdrawal; I have taxes withheld from both. The pension withholding I don't try to control, I just let them withhold whatever they want. I estimate my taxes at the beginning of the year using TurboTax & subtract the pension withholding to calculate how much more I need to have withheld from my IRA withdrawal.

Since I'm only doing one IRA withdrawal at the beginning of the year, that works out pretty well without me having to file quarterly.
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by Bogle7 »

Quart
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Artful Dodger
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by Artful Dodger »

morsetaper2 wrote: Wed Jan 19, 2022 10:13 pm
cheese_breath wrote: Wed Jan 19, 2022 10:05 pm I pay estimated taxes every quarter.
Do you use the usual tax software for consumers? I have always used H&R Block Deluxe + State. Have never recalled seeing anything in there regarding quarterly estimated taxes. So I assume you prepare quarterly estimated taxes then square it all up before the April tax deadline?
Yes, quarterly...

I think you're asking how to do it. You can mail a check in with a 1040-ES form, or register for EFTPS (Electronic Federal Tax Payment System) (that's what I do) and make your payment online. If you have state taxes due, they can be done in a similar fashion.

As far as how much to pay, you can use any good tax software to come up with an estimate. You'll have to pay tax on any earnings in your taxable accounts, IRA withdrawals, and any pensions or social security. No tax on savings withdrawals other than the earnings and no tax on Roth IRA withdrawals
Last edited by Artful Dodger on Wed Jan 19, 2022 10:24 pm, edited 1 time in total.
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morsetaper2
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by morsetaper2 »

I'm no tax accountant, my tax situation has always been pretty simple. $$ from my salary and investment income from my taxable acct. H&R Block deluxe leads me through the process easily enough.

What has me confused... Say I retire today (1/19/2022). I have earnings from my job, but for the rest of the year I am withdrawing from my investments. How would you estimate quarterly taxes if the H&R Block tax software for Tax Yr 2022 isn't available really until Jan of 2023?

What do you use to determine and fill out your quarterly tax forms?
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GerryL
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by GerryL »

When I retired, I had to start paying quarterly estimated taxes. But once I hit RMD age (in my case, 70.5) I stopped. Now I take the last chunk of my RMD in the last quarter of the year and have the full amount of state and fed taxes (based on the Safe Harbor rule) withheld from that final distribution.

By April 15 (actually earlier) I will know how much I will need to have withheld, so then I can manage my RMDs to make sure I will cover that amount come November.
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by calwatch »

morsetaper2 wrote: Wed Jan 19, 2022 10:24 pm I'm no tax accountant, my tax situation has always been pretty simple. $$ from my salary and investment income from my taxable acct. H&R Block deluxe leads me through the process easily enough.

What has me confused... Say I retire today (1/19/2022). I have earnings from my job, but for the rest of the year I am withdrawing from my investments. How would you estimate quarterly taxes if the H&R Block tax software for Tax Yr 2022 isn't available really until Jan of 2023?

What do you use to determine and fill out your quarterly tax forms?
You can fill out 1040-ES. The worksheet is on Page 8. It is fairly simple. Line 1 is the income, Line 2 is the deductions, subtract the two, calculate the tax by using the formula on page 7, divide by four and make payments on the due dates listed. This will keep you above board and create a small refund at the end of the year (due to inflation adjustment of brackets).
https://www.irs.gov/pub/irs-pdf/f1040es.pdf
lstone19
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by lstone19 »

morsetaper2 wrote: Wed Jan 19, 2022 10:24 pm What do you use to determine and fill out your quarterly tax forms?
There's really nothing you have to fill out other than the payment voucher if you mail a check. Form 1040-ES is really a worksheet for your own use (you do not send it in nor does the IRS ever ask you to "show your work".

Our situation will be like yours moving forward. For Q1 through Q3, I pay based on the previous year's safe harbor amount (100% or 110% depending on income of the previous year's tax - 25% or 27.5% per quarter). By the time the Q4 payment rolls around, I have enough information to do a draft tax return in TurboTax to know roughly what the current year's tax will be and pay the amount to bring the cumulative total to the lesser of a little over 90% of the current year's tax (the other safe harbor amount) or the 100%/110% of the the previous year's. And that insures I've paid enough each quarter to avoid any penalties.
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by TravelforFun »

morsetaper2 wrote: Wed Jan 19, 2022 9:57 pm I am planning for upcoming retirement and it suddenly dawned on me I won't be working for a bi-weekly paycheck from my employer anymore. I'll be living off my savings; a taxable acct, R/O & Roth IRA's 9no pension). How do I fill out and pay my taxes?

Will I have to work on my taxes starting in Feb and pay them before the April tax deadline using H&R Block Deluze + State every year like I have for years now. Or do I pay quarterly? I honestly have no clue. For my first Year in retirement I'll have about 3 months income from my job. Then starting in April I'm on my own, living off of my various accts. No pension.

How are taxes prepared and paid when you live off of a mix of income (salary & investment) in the first year. Then thereafter purely investment income. Then years later I'll also have SS income.

How is it done? Honest question I just never thought of.
If you have to withdraw from IRAs, have the custodian withhold enough taxes.

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calwatch
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by calwatch »

The other thing is that the estimated tax "penalty" is really interest that the IRS should be getting on the account, similar to a credit card line interest payment. The APR is currently 3%. If you have the funds, you should pay estimated taxes to avoid this obviously, but if you miss the safe harbor mark it is not something to lose sleep over.
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by FrugalInvestor »

Neither, I make sure to meet safe harbor rules each time I file so I don't have to deal with quarterly payments.

I don't like the hassle of tracking and paying quarterlies and don't want to risk the possiblity of missing a payment.
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by Artful Dodger »

Remember you're making estimated payments. You don't have to be exact. If you're close it won't matter that much. You do want to avoid a penalty for underpaying. You can do that by paying at least 100% of your past year's tax or 90% of the tax you'll owe this year.

The tax rules are the same for 2021 and 2022. Run an experimental 2022 return using your 2021 software. Put in one quarter of your salary and tax withheld plus the same as your 2021 earnings (cap gains, dividends, interest, etc.). The balance depends on what type of money. IRA withdrawals are 100% taxed, savings withdrawals and Roth are tax free. You've already accounted for the earnings. Estimate how much you'll pull from your IRA and put that into the software. It should give you a reasonable estimate. Subtract what will be withheld from your job. I would split the balance into three quarterly payments payable next June, September, and then January 2023.
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by Toons »

Quarterly
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by spammagnet »

I will be paying quarterly. We don't have much in the way of taxable investments. Our income is a small pension plus taxable IRA withdrawals. I could have taxes withheld from the withdrawals but want to pay them myself so I can get credit card kickbacks.
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by GrowYourGarden »

morsetaper2 wrote: Wed Jan 19, 2022 10:13 pm
Do you use the usual tax software for consumers? I have always used H&R Block Deluxe + State. Have never recalled seeing anything in there regarding quarterly estimated taxes. So I assume you prepare quarterly estimated taxes then square it all up before the April tax deadline?
One of the last tabs in the program, after filing and printing, is planning. You can use that section to estimate your taxes for the coming year, and print your quarterly vouchers.
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by FreeAtLast »

Hmmm......I believe that I am an outlier in this thread.....I calculate what I will owe in estimated taxes for the entire year and pay all of my obligations in the first quarter.....for both Federal and State returns. Then I don't have to think about it for the rest of the year. :beer
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by ee22bee »

If you don't have SS/IRA/pension/etc that have withholding, then pay quarterly based on prior year's tax liability. No need to estimate current year's income ahead of time. Safe harbor rule: No underpayment penalty if you pay 100% of prior year's AGI, or 110% of prior year AGI if AGI > 150k.

If you do make quarterly payments, aside from EFTPS already mentioned, you can also pay via IRS Direct Pay or with a credit card. All of these do not require mailing in a voucher.

FYI, Bogleheads primer on paying taxes with a credit card:
viewtopic.php?t=276677
Pinotage
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by Pinotage »

morsetaper2 wrote: Wed Jan 19, 2022 9:57 pm How is it done? Honest question I just never thought of.
Thank you for asking this question - it made me realize I’d never thought about it either!

Similar question, are any other taxes regularly deducted from income (while working as a W2 employee) somehow filed separately once retired?

I am thinking of school taxes, local income taxes etc…

Thank you!
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by Leesbro63 »

FreeAtLast wrote: Thu Jan 20, 2022 12:49 am Hmmm......I believe that I am an outlier in this thread.....I calculate what I will owe in estimated taxes for the entire year and pay all of my obligations in the first quarter.....for both Federal and State returns. Then I don't have to think about it for the rest of the year. :beer
In this era of zero percent interest rates, I’ve been doing this too. Once rates rise, I’ll go back to making quarterly estimates.
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by fourwheelcycle »

When I retired, I told my employer to withhold 50% of my monthly pension payments. I used to pay the balance of our estimated taxes, or enough to meet the safe harbor rules, every September. When we went on SS, we had the max withheld from our SS payments. When we began our RMDs, we withheld the balance of our estimated taxes from our IRA distributions. I am happy not to have to do the September IRS estimated payment checks every year.
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by feh »

cheese_breath wrote: Wed Jan 19, 2022 10:05 pm I pay estimated taxes every quarter.
+1
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by Ron »

FreeAtLast wrote: Thu Jan 20, 2022 12:49 am Hmmm......I believe that I am an outlier in this thread.....I calculate what I will owe in estimated taxes for the entire year and pay all of my obligations in the first quarter.....for both Federal and State returns. Then I don't have to think about it for the rest of the year. :beer
Same here.

I know my total income will be for the year on January 1st (no job, no taxable income - other than savings which is at 0%). I send the Fed (no State/Local tax) 15% of the RMD amount on the first business day of the year and am done with it. The 15% is on the high side of the effective tax rate due for the year, although I have slightly surpassed it in the distant past.

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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by jebmke »

Quarterly via EFTPS. Used it for over a decade with no hiccups.
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by buystoys »

We pay a quarterly estimated tax. The past couple of years, we've overpayed due to costs of our rental decreasing our taxable income. This year, we plan to convert some of DH's IRA to a Roth, so I think our estimate from last year will cover us this year.
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by carolinaman »

Taxes are deducted from pension and SS. I do some QCDs and rest RMDs. Withhold taxes on RMDs. I have done large Roth conversions the past 2 years and did estimated taxes for them.

I have a spreadsheet that lists all income (pension, SS, dividends, interest, other) and withholdings. It calculates my tax liability so I have a good handle of what taxes need to be paid and estimated taxes, if any. The spreadsheet is necessary for me to determine what my tax liability is and how much to withhold and estimated taxes.
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by fourwheelcycle »

carolinaman wrote: Thu Jan 20, 2022 6:54 am I have a spreadsheet that lists all income (pension, SS, dividends, interest, other) and withholdings. It calculates my tax liability so I have a good handle of what taxes need to be paid and estimated taxes, if any. The spreadsheet is necessary for me to determine what my tax liability is and how much to withhold and estimated taxes.
+1 When I was working, after I did our taxes every spring I used to estimate our taxes vs. withholding for the coming year, then I called the payroll office and asked them to increase my specific dollar monthly withholding amount. When I retired, I developed a spreadsheet like carolinaman's - it has been very helpful.
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by Carl53 »

I review my withholding from my pension once or twice a year looking at non-pension income changes (conversions or other taxable events) to adjust if necessary.
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by JoMoney »

I'm not yet retired or in a withdrawal phase, but when I do I expect my income will funded through early withdrawals from a Roth IRA funded through "Roth IRA Conversion Ladder" rungs in the earlier years, then just direct taxable IRA withdrawals in the later (qualified age) years.
My current plan, is each year after I make that years conversion from IRA to Roth I will follow it up with a withdrawal from the Roth, and I can direct the Roth IRA custodian to withhold the amount needed to pay the Federal (and State if applicable) income taxes owed on the conversion. I expect that each years Roth conversion will likely be the only (or at least the bulk of) taxable income each year.

Some would likely prefer to pay the taxes out of an already taxable account, but I don't expect to have/use a taxable account other than a small emergency/savings fund.
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by MikeG62 »

cheese_breath wrote: Wed Jan 19, 2022 10:05 pm I pay estimated taxes every quarter.
^This for me as well.
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by David Jay »

TravelforFun wrote: Wed Jan 19, 2022 10:45 pmIf you have to withdraw from IRAs, have the custodian withhold enough taxes.
ee22bee wrote: Thu Jan 20, 2022 1:21 amIf you don't have SS/IRA/pension/etc that have withholding, then pay quarterly based on prior year's tax liability.
These two posts indirectly addressed withholding, but for clarity: If one is having all their taxes withheld, there is no quarterly requirement. One could take your entire year's withdrawal in December, withhold enough to meet safe harbor limits and that is acceptable.

In my case, I make tIRA distributions twice a year, once in January and once in July. I do not withhold any taxes in January, all the withholding is from the July distribution.
Artful Dodger wrote: Wed Jan 19, 2022 10:55 pmYou do want to avoid a penalty for underpaying. You can do that by paying at least 100% of your past year's tax or 90% of the tax you'll owe this year.
A third safe harbor qualification not mentioned above: A tax underpayment of less than $1000 also meets the safe harbor requirement.
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morsetaper2
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by morsetaper2 »

Artful Dodger wrote: Wed Jan 19, 2022 10:55 pm <snip>

The tax rules are the same for 2021 and 2022. Run an experimental 2022 return using your 2021 software. Put in one quarter of your salary and tax withheld plus the same as your 2021 earnings (cap gains, dividends, interest, etc.). The balance depends on what type of money. IRA withdrawals are 100% taxed, savings withdrawals and Roth are tax free. You've already accounted for the earnings. Estimate how much you'll pull from your IRA and put that into the software. It should give you a reasonable estimate. Subtract what will be withheld from your job. I would split the balance into three quarterly payments payable next June, September, and then January 2023.
Excellent! This was the answer I was looking for. Basically an outline (or overview) of the process. Thanks, this was helpful.

Thinking I did not compose my original question succinctly enough to describe what information I was looking for.
Last edited by morsetaper2 on Thu Jan 20, 2022 8:52 am, edited 1 time in total.
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by morsetaper2 »

GrowYourGarden wrote: Thu Jan 20, 2022 12:13 am
morsetaper2 wrote: Wed Jan 19, 2022 10:13 pm
Do you use the usual tax software for consumers? I have always used H&R Block Deluxe + State. Have never recalled seeing anything in there regarding quarterly estimated taxes. So I assume you prepare quarterly estimated taxes then square it all up before the April tax deadline?
One of the last tabs in the program, after filing and printing, is planning. You can use that section to estimate your taxes for the coming year, and print your quarterly vouchers.
Thanks, never went looking for it previously, so did not know it was there.
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by MBB_Boy »

Leesbro63 wrote: Thu Jan 20, 2022 5:26 am
FreeAtLast wrote: Thu Jan 20, 2022 12:49 am Hmmm......I believe that I am an outlier in this thread.....I calculate what I will owe in estimated taxes for the entire year and pay all of my obligations in the first quarter.....for both Federal and State returns. Then I don't have to think about it for the rest of the year. :beer
In this era of zero percent interest rates, I’ve been doing this too. Once rates rise, I’ll go back to making quarterly estimates.
Can you just do it all in Q4?
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by jebmke »

I use my preliminary return for the prior year to estimate safe harbor and schedule 4 payments in EFTPS. in the first week of the next January I have my income nailed down for prior year so I can cancel or modify the Q4 payment as needed. It would be rare for me to be overpaid even if I canceled the Q4 payment.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by morsetaper2 »

ee22bee wrote: Thu Jan 20, 2022 1:21 am If you don't have SS/IRA/pension/etc that have withholding, then pay quarterly based on prior year's tax liability. No need to estimate current year's income ahead of time. Safe harbor rule: No underpayment penalty if you pay 100% of prior year's AGI, or 110% of prior year AGI if AGI > 150k.
My first year of retirement income (TY 2022) is likely to be about 2/3 of the previous years (TY 2021) income (salary) I rec'd from my job. So thinking estimating my taxes for TY 2022 is what to do in my situation.
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by dbr »

MBB_Boy wrote: Thu Jan 20, 2022 8:42 am
Leesbro63 wrote: Thu Jan 20, 2022 5:26 am
FreeAtLast wrote: Thu Jan 20, 2022 12:49 am Hmmm......I believe that I am an outlier in this thread.....I calculate what I will owe in estimated taxes for the entire year and pay all of my obligations in the first quarter.....for both Federal and State returns. Then I don't have to think about it for the rest of the year. :beer
In this era of zero percent interest rates, I’ve been doing this too. Once rates rise, I’ll go back to making quarterly estimates.
Can you just do it all in Q4?
Technically no, but an option when taking distributions from which taxes can be withheld, such as an IRA or 401k, is to do that at year end. Withholding is deemed as if paid all year long but estimated tax payments are not. I do that when taking my RMD at year end.
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by Leesbro63 »

MBB_Boy wrote: Thu Jan 20, 2022 8:42 am
Leesbro63 wrote: Thu Jan 20, 2022 5:26 am
FreeAtLast wrote: Thu Jan 20, 2022 12:49 am Hmmm......I believe that I am an outlier in this thread.....I calculate what I will owe in estimated taxes for the entire year and pay all of my obligations in the first quarter.....for both Federal and State returns. Then I don't have to think about it for the rest of the year. :beer
In this era of zero percent interest rates, I’ve been doing this too. Once rates rise, I’ll go back to making quarterly estimates.
Can you just do it all in Q4?
No. The IRS wants it's money on time or early. If you wait until Q4, then the prior 3 quarters are late.
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by user9532 »

For 2022 I made an estimation of my taxes and adjusted the monthly withholding from my pension.
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by RetiredAL »

I have taxes withheld from SS and IRA withdrawals to cover expected taxes. I have never done an estimated payment. I currently have very little income from other than SS and IRA withdrawals, but this will start to change in future years.

This last Dec, due to a larger than planed for Roth conversion, I did a special IRA withdrawal where most went to tax withholding, to meet 'safe harbor' criteria.
Broken Man 1999
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by Broken Man 1999 »

DW and I have SS benefits and distributions from our TIRAs as our only source for our expenses.

DW has an automatic distribution each month with taxes withheld by Vanguard and sent to Uncle Sam.
My distributions are very lumpy, and on the larger ones I have Vanguard send in some taxes.

I run our numbers thru a tax estimator near the end of the year, and ensure we are in safe harbor. I always try to owe a bit to send in on whatever day individual taxes are due. That way I don't care much when my tax return is processed. No way I would want to be counting on a refund in today's tax return processing nightmare. :shock: I never thought it was a good idea to lend money and receive no interest when it was returned.

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Norton750
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by Norton750 »

Another vote for simply having enough withholding done from my end-of-year RMD to satisfy both state and federal safe harbor rules. I calculate the safe harbor using the previous year's tax payments. No need to make (8) estimated tax payments. No need to calculate the current year's tax liability. No need to make an interest-free loan to the government by pre-paying taxes ahead of time. Easy and cheap - and a process that DW can easily follow when I (likely) predecease her.
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dcnut
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by dcnut »

I have been paying quarterly estimated taxes for many decades, and have continued to do so in retirement.

I also realize that there are benefits to having all the taxes withheld from my 403b RMD, which I take yearly in December. My hesitation, however, is due to the fact that my 403b RMD comes from TIAA/CREF via their MDO (minimum distribution option) service. I would need to revise the MDO withdrawal every year, and I don't trust the TIAA/CREF back office not to screw this up.
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by mcraepat9 »

Pinotage wrote: Thu Jan 20, 2022 4:21 am
morsetaper2 wrote: Wed Jan 19, 2022 9:57 pm How is it done? Honest question I just never thought of.
Thank you for asking this question - it made me realize I’d never thought about it either!

Similar question, are any other taxes regularly deducted from income (while working as a W2 employee) somehow filed separately once retired?

I am thinking of school taxes, local income taxes etc…

Thank you!
School taxes are typically property taxes and usually do not get deducted from your paycheck as a W-2 employee.

Local income taxes, depends on the locality of course - in NYC, those taxes are paid to NYS Dept of Taxation and Finance, so you would make quarterly estimated tax payments quarterly just like NYS income tax
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by minesweep »

I pay my federal estimated yearly tax the first week in December. It's deducted from my RMD (using the safe harbor method). For my state I do quarterly estimated payments. If Vanguard would allow income tax withholding from my RMD for PA I would do that in December as well. Unfortunately for me, PA does not require it, so Vanguard won't comply with my wish.
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HeelaMonster
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Re: How Do You Pay Taxes When Retired? Qrtly Or Once Every Year?

Post by HeelaMonster »

Norton750 wrote: Thu Jan 20, 2022 11:30 am Another vote for simply having enough withholding done from my end-of-year RMD to satisfy both state and federal safe harbor rules. I calculate the safe harbor using the previous year's tax payments. No need to make (8) estimated tax payments. No need to calculate the current year's tax liability. No need to make an interest-free loan to the government by pre-paying taxes ahead of time. Easy and cheap - and a process that DW can easily follow when I (likely) predecease her.
minesweep wrote: Thu Jan 20, 2022 12:35 pm I pay my federal estimated yearly tax the first week in December. It's deducted from my RMD (using the safe harbor method). For my state I do quarterly estimated payments. If Vanguard would allow income tax withholding from my RMD for PA I would do that in December as well. Unfortunately for me, PA does not require it, so Vanguard won't comply with my wish.
I like this approach, but gather there are some states that require Vanguard (and presumably other custodians) to withhold state taxes, while others do not? How do I determine if my state (NC) requires or does not?
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