RMD income tax withholding
Hello,
I have read that an individual with RMDs may apply the income tax withheld from the RMD to offset other income earned throughout the year.
For example, suppose a business owner is projected to have a $150k tax liability for 2018.
Rather than having the Federal income tax withheld thru each payroll, is it possible to simply direct the entire sum of the RMD, taken in the 4th quarter, for Federal income taxes – with no penalties or interest being due even though no income taxes were withheld throughout the year for payroll purposes? The advantage would be to benefit from the time value of money.
Are you aware if the above is legal and authorized by the IRC?
Also, would you be aware how States like NJ treat this?
Thank you.
Jason
Permalink Submitted by Alan - IRA critic on Mon, 2018-10-22 20:10
Withholding from any source at anytime during the year is credited as if paid equally throughout the year. Many people withhold from their RMDs (or other IRA distributions) in order to avoid paying quarterly estimates. The total withholding only needs to meet one of the safe harbor requirements, which for most is 100% of the prior year tax liability. Don’t know about NJ.