Withholding on 457(b) (how to calculate?)

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trallium
Posts: 99
Joined: Wed Dec 29, 2021 6:53 pm

Withholding on 457(b) (how to calculate?)

Post by trallium »

I recently retired and I'm trying to set up an automated monthly withdrawal from my 457(b) from Fidelity.

When I go to https://withdrawals.fidelity.com and go to set it up, I get this:

First withdrawal $2,778.00
Est. federal tax -$169.47
Est. state tax -$16.95
You'll receive $2,591.58

I'm in California FWIW. Next year I'll have about $75k income between the pension and this withdrawal if I don't do any Roth conversions. It seems like the defaults for withholdings won't be enough to cover the taxes I'll owe? Does anyone have a suggestion of how to calculate how much to withhold from 457(b) withdrawals?
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David Jay
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Location: Michigan

Re: Withholding on 457(b) (how to calculate?)

Post by David Jay »

Many individuals here do a sample tax return to determine their marginal tax rate. There will be a small bracket adjustment (for inflation) for 2023 but it is unlikely to affect your bracket.

Once you do a “dummy” tax return using 2021 or 2022 software, add $1000 to your 457 withdrawal amount and see how much your state and federal taxes go up. Use that percentage for your withholding percentage.

If you don’t have tax return software from past years, I like this tax calculator. It is simple but relatively complete if one does not have a complicated return: https://www.mortgagecalculator.org/calc ... ulator.php
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
sport
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Joined: Tue Feb 27, 2007 2:26 pm
Location: Cleveland, OH

Re: Withholding on 457(b) (how to calculate?)

Post by sport »

One alternative is to have enough withholding to equal your tax for the previous year. This puts you in a "safe harbor" and you will not owe any penalties. If you owe more taxes than this, you can pay those when you file your return.
Topic Author
trallium
Posts: 99
Joined: Wed Dec 29, 2021 6:53 pm

Re: Withholding on 457(b) (how to calculate?)

Post by trallium »

My pension (where I entered zero exemptions) looks like it is also not withholding enough tax.

I use turbo tax online and have never figured out how to do a dummy return, thanks for the link to the tax calculator site.

I checked my effective federal and state tax rates from my 2021 taxes. Withholdings on my W-2 income for 2022 ended up having matching percentages to my 2021 effective rates. My taxes and withholdings were pretty dialed in before I retired. I think I'll just try to get both my 1099-R income sources to withhold at the same rates as my 2021 taxes and my 2022 W2 withholdings. Looking at the calculator is making my head numb, seems like my effective tax rates would not really change much (or would go down in proportion with my income going down).

Thanks for the reminder about safe harbor. My 2022 withholdings across all sources for federal are $27 shy of my 2021 federal taxes paid. I guess that means I've not met the safe harbor for 2022, but I could make an estimated tax payment online to make sure I get over 100%.
sport
Posts: 12094
Joined: Tue Feb 27, 2007 2:26 pm
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Re: Withholding on 457(b) (how to calculate?)

Post by sport »

You will have met a safe harbor requirement. If you have paid 90% of the current year tax, you have also met the safe harbor.
If you owe less than $1000, that also meets a safe harbor. Don't worry about $27.
https://www.hrblock.com/tax-center/irs/ ... x-penalty/
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