Tricks of the Trade
 
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Tricks of the Trade

 

(@giovanelli766)
Trusted Member Customer
Joined: 2 years ago
Posts: 91
Topic starter  

If your retired and making IRA (not Roth) withdraws to live on (before age 72 when RMDs start) how and when do you pay the tax on the withdraws? Well, I have a trick for you! When you withdraw money from an IRA, the entity holding your IRA will ask you how much of the withdraw do you want withheld for Federal taxes (which the entity then sends to the IRS). You figure out what your tax bracket will be for the year and figure out the $$ amount to be withheld, done. Or you can say $0 withholding and faithfully do your quarterly tax payments. Or, and here is the trick, you can say $0 withholding, do not pay quarterly taxes, but instead determine what Fed taxes you owe for the year, and with your last IRA withdraw of the year, request that exact amount (at 100% withholding) in December. This way you are not giving the IRS a free loan and the money stays invested until the end of the year. Legal? Yes:

https://financialducksinarow.com/1663/ira-trick-eliminate-estimated-tax-payments/

https://www.irahelp.com/slottreport/how-use-income-tax-withholding-ira-distributions-and-when-not


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(@hines202)
Estimable Member Customer
Joined: 2 years ago
Posts: 158
 

It's a pretty common tactic, especially for those on RMDs - you can also use the last RMD of the year to pay your taxes, rather than forking it over and sacrificing the growth. Just be careful about the timing, don't cut it too close to 12/31 or it might not get processed in time. Lots of people doing this, plus last minute conversions, etc can jam up the brokerages.


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(@giovanelli766)
Trusted Member Customer
Joined: 2 years ago
Posts: 91
Topic starter  

Anybody have some uncommon tactics??


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