I did a bit of shopping yesterday and today -- bought blueberries and probiotics at Sam's ($16), lunch at McDonald's ($4), and groceries at Aldi ($39).
I called TIAA yesterday and set up my RMD. Because I have two funds, from two different employments, I'll get two monthly payments. It's a little more than I expected. I'll have to be careful with my new wealth, haha.
My street has finally been finished. Today I am parked right out front and it feels so good to park without hassle again. And the weather has cooled off, so all things are looking up!
August 14th, 2021 at 01:48 pm 1628948932
Glad to hear that the street project is done and the weather has cooled for you.
August 14th, 2021 at 11:07 pm 1628982449
I did not have tax withholding taken from the accounts, but I can change that. So far, only one fund has been processed. The other is a bit more complicated because I have been getting interest-only payments from it. Now that must stop and payments will restart as RMDs. However, I'm pretty sure the guy I talked to said that what was withheld from my interest payments will count toward my tax liability.
I've been fiddling around with the numbers and I'm pretty sure I will still be in the 12% bracket, at least for 2021. 2022 may be a different story.
I was assuming that I would save a good portion of the income and pay taxes as usual at one time prior to April 15, 2022. But apparently, if I owe more than $1K I HAVE to pay quarterly estimated taxes? Are you saying that would begin this September? I don't think I will know enough by then. I won't get my first payments until September 3 or so.
Should I consult a tax expert? Confused.
August 15th, 2021 at 01:44 am 1628991851
A funny thing happens to your taxable income once RMDs start. This is because of something known as the Social Security "tax torpedo," where you very well may go from none of your Social Security being included as taxable income to having up to 85% of it included as taxable income.
So someone who is 71 and has no draws from their retirement accounts in one year and receives $25,000 in Social Security ends up having no taxable income and no tax.
Then the next year, they start RMDs, and say they have $25,000 of those as well. Whereas none of their Social Security was taxable the prior year, once the RMDs start, over $7,000 of their RMDs are taxable, and they end up with taxable income of over $18,000 and a tax bill of over $2,000.
You can use a tax calculator like the one at H&R Block to estimate your taxes next year and figure your withholding. Using the marginal bracket (in the example above, the person is in the 12% bracket) as a way to estimate withholding works ok too.
I always urge my retired clients to have withholding done from one of their income-paying accounts. It's less of a hassle than quarterly payments and if you ever have unusual taxable income during the middle of a year--a gambling win or a gain on a sale of a security in a taxable account--you are more likely to be covered for the tax owed because of the different way the IRS treats withholdings as compared to estimated payments.
If you DO want to make your quarterly estimated payments, I would urge you in that case to schedule the payments online with the IRS (irs.gov/payments). The IRS has been having a horrid time since the start of the pandemic with their mail not getting opened and people who make estimated payments by check will sometimes get penalty notices because the IRS hasn't opened their envelope yet.
I hope I've given you enough information to calculate your withholding, but if you are still confused after running your numbers through the H&R BLock tax calculator (include your RMDs as "Other Income"), then you might want to contact a tax pro.
August 15th, 2021 at 01:51 am 1628992260
(That's why withholding is better than estimated payments--it is automatically calculated as being done throughout the year, EVEN for those clients who just take one big RMD distribution in December.)
August 15th, 2021 at 08:06 pm 1629057970
Happy belated birthday, btw!
August 15th, 2021 at 09:03 pm 1629061412
And thank YOU, Dido, your information is very helpful! I'm going to call tomorrow and change to withholding.