Using RMD distribution to pay income tax

Submitted by Gary Robbins on Sat, 2024-04-06 14:32

Can I pay my federal income taxes by having the amount I owe withheld from my annual RMD distribution. If so, can I do this near the end of the tax year?

Thanks for any input.

Gary



Submitted by Alan - IRA critic on Sat, 2024-04-06 15:24

Yes, many people do that because withholding is treated as being paid equally throughout the year, even when it is not paid until December. Therefore, you can hold your money longer and collect interest or investment returns on it rather than giving the IRS an interest free loan. You can also determine one time the amount you need to withhold to avoid any underpayment penalty. Just don’t wait too long, generally not later than mid December.



Submitted by Gary Robbins on Sat, 2024-04-06 15:56

Thank you Alan.

You have been most helpful.

Gary



Submitted by BruceM on Sun, 2024-04-07 18:14

Completely agree with Alan.

This is my 3rd year using this strategy with my RMD, so let me offer a couple of other details

I do my Qualified Charitable Distributions (QCDs) the first week of December and give a couple of days to clear, although the time requirement here may vary by IRA custodian.

I generally have enough income information for the year to approximate my fed tax and know my withholdings total, thus allowing me to direct a pretty accurate amount of the remaining RMD withdrawal to the IRS during the second week of December.  But even if its not sufficient, as long as my underwithholding amount is under $1,000, there won’t be a penalty. But the key here is to make sure you allow enough time to take out the RMD by 12/31. This tends to be a busy time for IRA custodians and some of the brokerage employees may be on vacation for the holidays. And beginning 2023, the IRS has tightened up the penalty of IRA RMD underwithdrawals.



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