Question on withholding taxes.

[Caymus]

I have a question on withholding taxes from investment accounts. I assume you can have taxes withheld from 401K and regular IRA distributions. How about from regular brokerage accounts and mutual funds? If not, I assume you would account for that in estimated tax payments.

It also looks like taxes can also be withheld from SS payments.

This will be the first year that I will not be able to adjust my employer withholding to account for investments.

I would appreciate any advice (except see a tax/investment professional):icon_wink:

[Bill14564]

I have a question on withholding taxes from investment accounts. I assume you can have taxes withheld from 401K and regular IRA distributions. How about from regular brokerage accounts and mutual funds? If not, I assume you would account for that in estimated tax payments.

It also looks like taxes can also be withheld from SS payments.

This will be the first year that I will not be able to adjust my employer withholding to account for investments.

I would appreciate any advice (except see a tax/investment professional):icon_wink:

I'm curious about this as well. In particular, if a financial advisor/brokerage submits payments for taxes on capital gains, are those payments considered "withholding" or are they considered "estimated tax payments?" The two types of payments are treated differently when calculating underpayment penalties.

Fortunately for us, we can still make adjustments to payments that are considered to be withholding. Otherwise, we would need to pay close attention to our quarterly income and gains and pay estimated taxes.

[retiredguy123]

I never have any taxes withheld unless withholding is mandatory. Just go to irs.gov and make an estimated payment online. Typically, quarterly estimated payments are due on April 15, June 15, September 15, and January 15. But, you can make additional tax payments at any time. They are happy to take your money.

[UsuallyLurking]

Based on my own personal experience: Yes, taxes can be withheld on retirement accounts, whether they are from RMDs or non-RMD withdrawals. My brokerage account does not offer me any way of withholding from it.

My understanding is that, yes, you can have any amount you want withheld from Social Security payments if you desire.

Personally, I use a combination of RMD withholding and estimated tax payments, and I'm usually pretty close when the time comes for reckoning.

[Stu from NYC]

I have taxes withheld on rmd distributions from mutual funds on 401 and ira.

My cpa has me paying quarterly taxes on other income.

[davem4616]

Taxes are withheld on our RMD's and on our annuity payments and on a small pension....everything else I owe, I pony up at tax time

I never want to receive a refund....Uncle Sam doesn't pay me interest and I hate having to wait for my money to be returned

[asianthree]

For any of our distribution we have choice to withhold. We do not.

[Stu from NYC]

If you do not pay enough taxes during the year the IRS will levy a fine. This is why we have our CPA tell us what must be paid now.

[manaboutown]

If I need medical advice I see an MD; for legal advice I talk with an attorney specializing in the area of law concerning me. It is a slam dunk I check with my CPA on all tax issues and a tax attorney when necessary.

[retiredguy123]

If you use TurboTax to prepare your taxes, the software will calculate the 4 quarterly payments you need to make to avoid any underpayment tax penalty for the next year, with the payments due on April 15, June 15, September 15, and January 15. As long as you make those payments on time, it doesn't matter how much your income increases, you will not owe a penalty. I would rather make the estimated tax payments myself than to allow another entity to do it for me. If I make an overpayment, I just apply it to the next year's return. I never get a refund.

[dewilson58]

If you use TurboTax to prepare your taxes, the software will calculate the 4 quarterly payments you need to make to avoid any underpayment tax penalty for the next year, with the payments due on April 15, June 15, September 15, and January 15. As long as you make those payments on time, it doesn't matter how much your income increases, you will not owe a penalty. I would rather make the estimated tax payments myself than to allow another entity to do it for me. If I make an overpayment, I just apply it to the next year's return. I never get a refund.

Rates are so low, I always under pay. :popcorn:

[Bill14564]

If you use TurboTax to prepare your taxes, the software will calculate the 4 quarterly payments you need to make to avoid any underpayment tax penalty for the next year, with the payments due on April 15, June 15, September 15, and January 15. As long as you make those payments on time, it doesn't matter how much your income increases, you will not owe a penalty. I would rather make the estimated tax payments myself than to allow another entity to do it for me. If I make an overpayment, I just apply it to the next year's return. I never get a refund.

I would be careful with that advice. I am working out a strategy to avoid a penalty next year; my income increased this year and resulted in a penalty.

As dewilson58 points out, rates are low and my penalty is very small. Still, I would like to avoid it for next year.

[retiredguy123]

I would be careful with that advice. I am working out a strategy to avoid a penalty next year; my income increased this year and resulted in a penalty.

As dewilson58 points out, rates are low and my penalty is very small. Still, I would like to avoid it for next year.
For most taxpayers, your estimated payments need to equal or exceed the amount of the total tax paid in the previous year. The total tax is shown on Line 24 of the 2021 tax return. You divide that number by 4 and make that payment 4 times during the next year. For some higher income taxpayers, the formula is a little different. But, Turbotax calculates the amounts either way. So, even if you have a huge income increase in 2022, you still will not owe a tax penalty. I have been doing it that way for over 30 years, and never owed a tax penalty.

[dewilson58]

For most taxpayers,....................So, even if you have a huge income increase in 2022, you still will not owe a tax penalty. I have been doing it that way for over 30 years, and never owed a tax penalty.

In a prior life..............same advice I gave out.
But personally, I keep my money and make money on it, easily cover the penalty and buy a pizza with the excess earnings.
Quarterly estimates is good advice.
:coolsmiley:

[asianthree]

If you do not pay enough taxes during the year the IRS will levy a fine. This is why we have our CPA tell us what must be paid now.

All of our money is distributed on 12/05. That way no worries of penalty. Our financial guy, CPA and tax attorney are all on the same page every year. Even when we have sold our houses never listed until 11/1, closing on or before 12/29

[Bill14564]

For most taxpayers, your estimated payments need to equal or exceed the amount of the total tax paid in the previous year. The total tax is shown on Line 24 of the 2021 tax return. You divide that number by 4 and make that payment 4 times during the next year. For some higher income taxpayers, the formula is a little different. But, Turbotax calculates the amounts either way. So, even if you have a huge income increase in 2022, you still will not owe a tax penalty. I have been doing it that way for over 30 years, and never owed a tax penalty.

It looks like the 1040 and 2210 instructions do not agree. But, not a CPA or tax attorney so don't want to argue the point.

[retiredguy123]

It looks like the 1040 and 2210 instructions do not agree. But, not a CPA or tax attorney so don't want to argue the point.
I was referring to the following excerpt from the Form 2210 instructions:

"In general, you may owe the penalty for 2021 if the total of your
withholding and timely estimated tax payments didn't equal at least the
smaller of:
1. 90% of your 2021 tax, or
2. 100% of your 2020 tax. Your 2020 tax return must cover a
12-month period."

So, if you comply with item 2, you will not owe a penalty. I always pay 100 percent of the prior year tax and never owe a penalty. Note that higher income individuals may need to pay more.

[mkjelenbaas]

I have a question on withholding taxes from investment accounts. I assume you can have taxes withheld from 401K and regular IRA distributions. How about from regular brokerage accounts and mutual funds? If not, I assume you would account for that in estimated tax payments.

It also looks like taxes can also be withheld from SS payments.

This will be the first year that I will not be able to adjust my employer withholding to account for investments.

I would appreciate any advice (except see a tax/investment professional):icon_wink:
When you talked with a tax professional what did they say?

[spinner1001]

I have a question on withholding taxes from investment accounts. I assume you can have taxes withheld from 401K and regular IRA distributions. How about from regular brokerage accounts and mutual funds? If not, I assume you would account for that in estimated tax payments.

It also looks like taxes can also be withheld from SS payments.

This will be the first year that I will not be able to adjust my employer withholding to account for investments.

I would appreciate any advice (except see a tax/investment professional):icon_wink:

You essentially have three topics.

First, avoiding an IRS penalty for underpayment of taxes is tricky in particular cases if you are not familiar with the IRS requirements for tax payments and your income is changing a lot from year to year. It is tricky because you need to know how much the government wants and the timing to pay during each year to avoid an underpayment penalty. If you don’t have the knowledge or interest in learning, I suggest that you have a tax preparer help you. But seek help earlier in the year rather than the end of the year because it might be too late to avoid some penalty. For an overview of what IRS requires, see this link Topic No. 306 Penalty for Underpayment of Estimated Tax | Internal Revenue Service (https://www.irs.gov/taxtopics/tc306)

Second, whether your financial institution or other payor of funds to you can withhold taxes for you varies across entities. It’s hard to generalize too much except for Social Security and other government payors. You could ask each one or at least the ones who pay out the most to you whether they can withhold taxes on your behalf.

Lastly, if you don’t have enough taxes withheld by your payor to avoid a penalty, you can still avoid a penalty by paying IRS ‘estimated taxes’ along the way during each year. You get credit from IRS if you overpay your estimated taxes. Some people are clever enough not to pay too early to the government without a penalty but you must either be knowledgeable or lucky.

[Foxmd]

I have Fidelity withhold 30% on my RMDs.

[retiredguy123]

Obviously, if withholding payments are mandatory, you don't have a choice. But, I don't see any advantage to setting up voluntary withholdings. Plan to make 4 estimated payments during the year, and subtract the mandatory withholding payments from the estimated payment amounts. You can review your income at the end of the year, and adjust the last estimated payment, which is due on January 15, to avoid or minimize any tax penalty. If in doubt, it is better to make larger estimated payments early in the year to avoid a penalty.

[Caymus]

Thanks for the replies. This will be a transitional year for me. For the next few years, I am currently planning to take enough distributions to keep my AGI just under the Medicare IRMMA level to take advantage of relativity low tax rates.
That will not be possible when I reach the RMD age.

On a side note, I have been looking for advisors for a while and have been mainly unimpressed. But I will keep looking.

[retiredguy123]

Thanks for the replies. This will be a transitional year for me. For the next few years, I am currently planning to take enough distributions to keep my AGI just under the Medicare IRMMA level to take advantage of relativity low tax rates.
That will not be possible when I reach the RMD age.

On a side note, I have been looking for advisors for a while and have been mainly unimpressed. But I will keep looking.
I would suggest Vanguard or Fidelity. You may want to visit the Fidelity office in Lake Sumter to see if they can meet your needs without paying any high fees or commissions.

[bob47]

If you pay the tax when the income is taken, so for a minimum required distribution which I usually take in late December, all the tax is paid to the government at the end of the year, is that a problem?

[retiredguy123]

If you pay the tax when the income is taken, so for a minimum required distribution which I usually take in late December, all the tax is paid to the government at the end of the year, is that a problem?
It depends. If the RMD raises your tax bracket, it could affect the tax rate for other income received early in the year.

[MandoMan]

I have a question on withholding taxes from investment accounts. I assume you can have taxes withheld from 401K and regular IRA distributions. How about from regular brokerage accounts and mutual funds? If not, I assume you would account for that in estimated tax payments.

It also looks like taxes can also be withheld from SS payments.

This will be the first year that I will not be able to adjust my employer withholding to account for investments.

I would appreciate any advice (except see a tax/investment professional):icon_wink:

Everything I withdraw from my retirement account is taxed 20% before it reaches my bank account. That’s plenty. However, I also had to kick back $10,000 from my Social Security income because I had too much other income, and to pay that I had to take out more money from my retirement account—plus 20%. And that will increase the kick back next year.

[retiredguy123]

Everything I withdraw from my retirement account is taxed 20% before it reaches my bank account. That’s plenty. However, I also had to kick back $10,000 from my Social Security income because I had too much other income, and to pay that I had to take out more money from my retirement account—plus 20%. And that will increase the kick back next year.
I think you can waive the withholding tax from most retirement accounts. I would ask the account custodian about doing that.

[FredJacobs]

I have been preparing taxes for a very long time and, up to last year, have been a site manager with the AARP's Tax-Aide program.

Regarding penalties - The IRS wants to receive 90% of your tax due before you submit your return. There are 2 exceptions - the tax due is less than $1,000 or the tax due is greater than the previous year.

Regarding Withholding - Yes, a simple phone call to Social Security can start withholding from your monthly payments. You can give them a dollar amount or a percentage to deduct. These deductions are Withholding not Estimated Payments. The total annual withholding will appear on Form 1099-SSA.

For Qualified Retirement Accounts - IRA, 403(B), 401(k), Pensions, etc. the company is required to deduct withholding unless you direct them not to. You can specify an amount or a percentage. The same is true for Non-Qualified Accounts - Annuities.

For Capital Gains and Dividends - It is not recommended that withholding be taken every time you have a Capital Gain. There are two reasons for this. First, Capital Gains and Dividends get a favorable tax rate and the brokerage cannot determine what your particular rate would be - some of your gain or dividends may not be taxed at all. Second, why take withholding when you may have a Capital loss to offset any gain.

For most people who have a large tax due when they file, the very first thing to do is to review every 1099-R to make sure there is an entry in Box 4. If so, is it between 10% and 15% of the amount shown in Box 2a? If not, call the company and increase the withholding. Then, use the Estimated Tax Worksheet to calculate what your tax might be for the following year. Remember to exclude events that are you unique to the current year - you had to surrender an annuity or an IRA for medical expenses, etc.

Hope this helps.

[Gac57]

If I'm on ss and I have a $4000 account on the side for trading stocks, would I owe taxes if haven't made any money on that account? I've had this account for 3 yrs. and have traded many stocks for only 3-4 days.

[retiredguy123]

If I'm on ss and I have a $4000 account on the side for trading stocks, would I owe taxes if haven't made any money on that account? I've had this account for 3 yrs. and have traded many stocks for only 3-4 days.
When you sell a stock for a higher price than you paid for it, you generate taxable income. If it was held for less than a year, the gain would be taxed as ordinary income. It sounds like you may be creating a complicated gain and loss paperwork exercise on your tax return.

[retiredguy123]

If I'm on ss and I have a $4000 account on the side for trading stocks, would I owe taxes if haven't made any money on that account? I've had this account for 3 yrs. and have traded many stocks for only 3-4 days.
When you sell a stock for a higher price than you paid for it, you generate taxable income. If it was held for less than a year, the gain would be taxed as ordinary income. It sounds like you may be creating a complicated gain and loss paperwork exercise on your tax return.

[Stu from NYC]

If I'm on ss and I have a $4000 account on the side for trading stocks, would I owe taxes if haven't made any money on that account? I've had this account for 3 yrs. and have traded many stocks for only 3-4 days.

Some day if we can get a very simple tax system the vast majority will be able to do it themselves.

My feeling is since tax law changes all the time and really do not want new dealings with the IRS better to pay a good professional.

[Jameson]

Based on my own personal experience: Yes, taxes can be withheld on retirement accounts, whether they are from RMDs or non-RMD withdrawals. My brokerage account does not offer me any way of withholding from it.

My understanding is that, yes, you can have any amount you want withheld from Social Security payments if you desire.

Personally, I use a combination of RMD withholding and estimated tax payments, and I'm usually pretty close when the time comes for reckoning.

I still have a few years before dealing with 401k RMD. If you don't mind my asking, can you take the RMD amount out in a year by multiple payments or a single withdrawal? If multiple did you find any pro/con to either method? I imagine this will probably vary by management company.

[Stu from NYC]

I still have a few years before dealing with 401k RMD. If you don't mind my asking, can you take the RMD amount out in a year by multiple payments or a single withdrawal? If multiple did you find any pro/con to either method? I imagine this will probably vary by management company.

We take out in multiple payments. Taking out in one is easier I suppose but not that difficult to call Rowe Price and tell them how much to send and how much to withhold.

[retiredguy123]

I still have a few years before dealing with 401k RMD. If you don't mind my asking, can you take the RMD amount out in a year by multiple payments or a single withdrawal? If multiple did you find any pro/con to either method? I imagine this will probably vary by management company.
I would suggest transferring the entire 401K account to a Vanguard or Fidelity IRA. Then, when you need to take your RMDs, they will calculate the amount each year and send it to you anyway you want. Or, if you set up a money market account with them, you can do online transfers of RMD money from the IRA to the MM account at any time yourself. As long as the MM account is not an IRA, just making the online transfer will satisfy the RMD requirement.

[bmarasco]

TurboTax !!!

[Joe Sacco]

I thought you had to choose from a limited number of percentages ie 10%,12% or 15%. I would like to know as well thank you 😊

[Stu from NYC]

I thought you had to choose from a limited number of percentages ie 10%,12% or 15%. I would like to know as well thank you 😊

If you are talking about percentages think you have a choice of what you want.

Would help if you quoted the poster you are referring to help better understand your question.

[Haggar]

I am a CPA. Many times I have seen withholding taxes on a brokerage statement.
I do have not a sense of how this has been calculated but if you talk to your agent he would probably know the answer. Withholding can be set up on practically anything including the sale of a property ( may be appropriate in the sale of a commercial property).

Haggar

[retiredguy123]

I thought you had to choose from a limited number of percentages ie 10%,12% or 15%. I would like to know as well thank you 😊
If you are referring to the RMD, I have never heard of specific percentages. As long as you withdraw the required amount within the year, you can make as many or as few withdrawals as you want.

[Haggar]

We take out in multiple payments. Taking out in one is easier I suppose but not that difficult to call Rowe Price and tell them how much to send and how much to withhold.

As long the RMD is taken in full by 12/31 of each year the IRS doesn't care.
Some of my clients take their RMD monthly, some take it in pieces and some take it as a lump sum..

Form 5498 issued by the trustee of each IRA advises you what your RMD from that plan is, They are generally issued in March of each year for the preceding year.
If you have multiple IRAs you can add up all of the RMD's for all of your IRAs and take it out of one plan.
I would take 401(k) from each plan as required.

Don't short the RMD - penalty is very severe.

[Stu from NYC]

As long the RMD is taken in full by 12/31 of each year the IRS doesn't care.
Some of my clients take their RMD monthly, some take it in pieces and some take it as a lump sum..

Form 5498 issued by the trustee of each IRA advises you what your RMD from that plan is, They are generally issued in March of each year for the preceding year.
If you have multiple IRAs you can add up all of the RMD's for all of your IRAs and take it out of one plan.
I would take 401(k) from each plan as required.

Don't short the RMD - penalty is very severe.

Did learn last year that you have to take specific amount from IRA and same for 401 based on your age based on value of each 12/31 to get to your total rmd.

[CoachKandSportsguy]

If I'm on ss and I have a $4000 account on the side for trading stocks, would I owe taxes if haven't made any money on that account? I've had this account for 3 yrs. and have traded many stocks for only 3-4 days.

nothing changes in the tax code about reporting trading activity whether you are on SS or not. Your monthly brokerage statement should tell you your ytd gain or loss. You report the annual gains and losses on your tax return from the 1099B statement.

trading can be summarized as a pay to play and pay scheme

good luck

[valuemkt]

I take taxes out for both social security and regular IRA distributions. It's a lot easier than doing quarterly payments, with no worries about underpayment penalties. No need for a CPA to charge you for a reminder to pay. Have used Turbo Tax for years .. that's all I need. To each their own..

[DAVES]

Based on my own personal experience: Yes, taxes can be withheld on retirement accounts, whether they are from RMDs or non-RMD withdrawals. My brokerage account does not offer me any way of withholding from it.

My understanding is that, yes, you can have any amount you want withheld from Social Security payments if you desire.

Personally, I use a combination of RMD withholding and estimated tax payments, and I'm usually pretty close when the time comes for reckoning.

This is the first year that I am forced to take RMD (required minimum distribution) I will be dealing with Fidelity and T. Rowe Price. Both show the amount I need to withdraw.
When you call to make the withdrawal they ask you if you wish them to withhold taxes.
You do not need to pay the tax until the end of the year. You will not be hit with any penalties so long as you have paid 110% of last years taxes. What to do? Return on safe cash, ie money market is minimal. The choice is pay em now or pay em latter, that is the only choice you have.

[DAVES]

I am a CPA. Many times I have seen withholding taxes on a brokerage statement.
I do have not a sense of how this has been calculated but if you talk to your agent he would probably know the answer. Withholding can be set up on practically anything including the sale of a property ( may be appropriate in the sale of a commercial property).

Haggar

Withholding taxes on a brokerage statement, Not proper accountant view but, we have to assume it is correct. As a client of both a CPA and more than one brokerage, I would not want to be caught in the middle of a dispute of the brokerages numbers, my CPA and the taxman. I hold one foreign stock-MY MISTAKE. I am charged a fee, a percentage of my dividend by some brokerage. That does not show in the dividend rate published. I expect it is or should be a tax deduction. I no longer can itemize though my accountant compares it to the normal deduction. Yet another gotcha.

[DAVES]

Some day if we can get a very simple tax system the vast majority will be able to do it themselves.

My feeling is since tax law changes all the time and really do not want new dealings with the IRS better to pay a good professional.

That joyous day will never come. It has been said they must change the tax code every few years because too many people learn to live with the previous tax code. A borrowed thought from an article I read. Our constitution is four pages. Our tax code is now 186,000 pages.

That guy Herman Cain proposed a flat tax 9-9--9. That was actually stolen from a book by Steve Forbes. Forbes said the number would need to be 12-12-12. That would surely not go well, even if truth, with voters. A straight flat tax would remove a great deal of government power. Tax rates used to encourage and discourage events. Housing a clear example. Aside Cain later modified has plan to allow deduction for interest on a home mortgage. The flat tax died even before it was born.

[Stu from NYC]

That joyous day will never come. It has been said they must change the tax code every few years because too many people learn to live with the previous tax code. A borrowed thought from an article I read. Our constitution is four pages. Our tax code is now 186,000 pages.

That guy Herman Cain proposed a flat tax 9-9--9. That was actually stolen from a book by Steve Forbes. Forbes said the number would need to be 12-12-12. That would surely not go well, even if truth, with voters. A straight flat tax would remove a great deal of government power. Tax rates used to encourage and discourage events. Housing a clear example. Aside Cain later modified has plan to allow deduction for interest on a home mortgage. The flat tax died even before it was born.

Your right sad but very true.

The only way that we all pay our fair share is with a flat tax and the vested interests aint gonna let that happen.

[Babubhat]

Calculate your income each quarter. Annualize it. Quicken is good for this. Input into inexpensive tax software and calculate tax. Make estimated payment.

Annualized Income - Overview, Mechanisms, Examples (https://corporatefinanceinstitute.com/resources/knowledge/accounting/annualized-income/)