Status of taxes witheld on Q4 RMD
What is the current IRS practice on the following question? Can one use taxes witheld on a Q4 RMD to replace quarterly estimated tax payments. A few years back Mr. Ed Slott was quoted by Kelly Greene in a WSJ article as saying that money witheld from from your IRA distribution to pay taxes “is treated as if it were paid evenly throughout the year- even if the Gov’t does not get it until the last day of Dec.. Its a great way to to avoid a penalty for underpayments for estimated taxes”
Permalink Submitted by tomd37 on Wed, 2010-11-10 02:55
Tax withheld from RMD is considered to be withheld evenly during the entire year.
Tom D.
Permalink Submitted by Anonymous (not verified) on Fri, 2010-11-12 17:49
Can someone address the following issue:
I always thought that WH on a distribution [u]does[/u] send the IRS taxes, but does [u]not[/u] identify the taxpayer in the lumpsum “tape” every month. That identification would reach the IRS much later Thus, I would think you cannot WH and take care of required estimated taxes.
Is there some IRS reference to clarify my point?
Thanks,
pko
Permalink Submitted by Alan Spross on Fri, 2010-11-12 21:00
pko,
I have not heard of this problem, but even if there were a delay in allocating the taxes between systems, the mere fact that withholding dollars appears on a 1099R of any type should result in the IRS allocating the withholding as if it was paid in equal quarterly estimates as Tom indicated.
While the total withheld might still not be sufficient, it does effectively back date the payment date. It would be a good solution for someone taking a large RMD or other distribution late in the year, and then having to file the infamous 2210 AI to show the IRS that the income was realized late in the year and therefore the estimates could also be paid in the last quarter. This eliminates the 2210 AI and can wipe out any underpayment penalties if the total withheld is sufficient.