Just a note: the RMD divisor at age 73 is 24.7. So with a million dollar balance the required distribution is $40,485.
Another good point, but it should be noted that if you are taking your first IRA draw due to your first RMD this year, chances are good that you haven’t been making quarterly estimated payments. In which case, I think it would be a good choice to withhold taxes on your RMD.
Necessary and absolutely worth it, I’m sure. I had a number of friends that had jobs like freelance photographers that did it all the time. But as a terminally lazy person that keeps records haphazardly via a bunch of random papers shoved into random drawers, the idea of having to compute quarterly taxes on multiple diverse income streams has always sounded like an onerous burden to me. I just KNOW I’d constantly be running up against deadlines, because I’m just that disorganized and lazy.
It’s a good thing my retirement is going to be very straightforward, income-wise.
It’s a strong argument for putting as much into a Roth-type vehicle as you can. We’re moving the split between regular and Roth more towards Roth each year. Since you never know what the tax laws will be like in the future, seems like a traditional (non-Roth) investment is only good if you are reasonably sure your tax bracket will be lower in retirement.
I had to start raiding my IRA last year and specified withholding be included plus the specific amount needed just for that reason.
You do you. And a man has got to know his limitations, which it sounds like you do. Good on ya. Seriously, not snarkily.
I’ll caveat that taxes are progressive. If you have e.g. $50K of SS and $50K of 401k/IRA withdrawals and you ask SSA & your brokerage to withhold taxes on each of those streams, you’ll still be underwithheld come next April. Beasue the taxes on $100K are more than double the taxes on $50K.
If, like me, you have about 8 income streams to deal with, the cumulative underwitholding effect gets huge. Unless you compute something that amounts to an estimated annual total then submit overwtholding requests to each source for their share of the excess.
Or just bag all that and compute your own estimated tax payment. After I retired It took me about 90 minutes to rig up a spreadsheet to compute all that. I just feed it the year to date payments from each source (from their websites) and it figures out how much I owe so far this year, net of what I’ve already paid in. That net is what I send to the IRS (also online) on the magic due dates. An Outlook task reminds me to actually do this a week ahead of time, not forget about it.
I’m highly lazy and forgetful. I’m also organized to offset both those shortcomings. My computer does all the remembering and most of the organizing and figuring out. I just do the shit it tells me to do on/near the dates it tells me to. And I set those dates early enough to allow for routine business, but not to allow me to say “Ah, f*** it!; that’s 3 weeks from now. I’ll deal with it later.” Followed by cancelling the reminder.
Don’t do that.
You may be able to request a larger withholding percentage, from any of the regular streams (IRA, SSA). Not applicable to your situation, necessarily, of course.
Back when we had a nanny for the kids, we bumped our payroll withholding up to cover the taxes we owed for her (as a household employee, her SS and income taxes were something we paid along with our own). We could alternately have calculated what we owed for each quarter and paid it that way, but I didn’t trust myself to remember to do so.
We will definitely have withholding from our IRAs and 401(k)s. In fact I already am - I have an inherited IRA from my mother, and Fidelity sends taxes directly to the IRS and the state.
I am quite good at ignoring REPEATED reminders, sadly - even with the computer nagging me.
I haven’t read the linked article - but I do recall reading years back about how an IRA is great for active traders, but NOT as great for people who hold onto stocks a long time.
From a capital gains perspective, that is.
If you buy and sell a lot of stocks, you have to calculate capital gains with every sale, and they may be short-term (i.e. taxed at the highest rate). But if they are in an IRA, you don’t have to worry about any of that.
If you hold stock in Acme Corp for 20 years, then sell, your gains will be taxed at the maximum rate regardless of your income level - 15%, I think. But if it’s held in your IRA, whenever you sell it, you basically wind up paying tax at your then-current rate, which might well be higher than 15%.
Agreed. You (any you) certainly can do that extra withholding on some / many / all of your income streams.
My point was simply that in order to set that extra amount or percentage even semi-accurately, one needs to go through fundamentally the same calculations one needs to perform to do estimated tax payments. @Railer13’s and/or @Tamerlane’s goal was to avoid that calculation complexity. OK. But by avoiding the complexity and simply going with standard withholding from all (or just some) of their income streams, they inevitably set up an under-withholding situation. Which might be material come April. Oops.
I’m intrigued by this approach, but also a bit confused (which is a fairly normal state for me these days, but I digress…)
I’m trying to figure out how you calculate your taxes owed YTD. As you correctly state, the total amount of taxes on $100k is more than double the total amount of taxes on $50k. Am I correct, then, in assuming that your quarterly payments increase throughout the year?
If you do strict YTD that would be the case I think. You could do a projection for the whole year and adjust accordingly as things change.
I’m on my phone, so this quickie will have to do until later today.
No.
The IRS has a form for computing all this with a pencil and it understands all this part-year stuff to avoid the problem you suggest.
I just computerized their form with specific blanks for each of my sources.
Oh, not at all a goal - just the way things randomly worked out from landing where I did in a very old fashioned get-hired-young-and-work-for-the-same-employer-for-multiple-decades-style (in slightly varying positions) 
. The vast bulk of my retirement will be in the form of a reasonably stable/adequately funded traditional defined benefit pension (with built in COLA adjustments). That + SS = essentially no complexity at all. I’ll just get paid monthly by checks like a regular boring schmo (a startlingly accurate descriptor). For better or worse, investment income for me isn’t much more than a rounding error.
If I had been working for the last few decades facing different retirement circumstances I would sadly have had to force myself to be more organized and on the ball. But, glory be, it has proven to be unnecessary for my own financial stability. Simple turbotax once a year, itemized if I have enough mortgage interest to deduct, standard if not - I’ve always received a refund, small or large depending on varying circumstances. Financial simplicity was not actively sought, rather it just crawled into my lap like a lazy kitten 
.
Now that’s a scenario a LOT of Americans would love to have. Me too.
Congrats on getting the right outcome even though, as you say, you can’t take too much credit for it. Bravo!
Here’s a consideration for the recently retired:
A few days ago I got a form letter from the company who manages the 401(k) stuff from my last employer. I had emptied out that account when I rolled it over into Schwab’s IRAs and Intelligent Income system. The form letter was very generic, telling me that I had a choice to take my money in distributions as income or to roll it over into another IRA. I thought it was just their computers burping out-of-date memos at me in connection with my dead account.
But today I thought I had better double-check, so I dusted off my old password and looked at the old 401(k) website and my account. I had over $2,900 in there! Looking through the history, it looks like a couple of my old funds paid out dividends after the rollover had occurred, and they were still sitting in there as cash.
I looked over all my options for getting it out of there, and decided to take that cash in the form of a check to myself. It’ll count as income, and taxes are automatically withheld. It wasn’t enough money for me to jump through all the hoops of rolling it over.
The moral: if you’ve just retired, go back to your old 401(k) after awhile to make sure no dividends came in after the rollover. I almost missed that the money was still languishing back in my old account! Had I not claimed it in time, it would have been sent to some sort of holding company/trustee, and I would have had to apply to that company to try to retrieve it.
Five or six years ago I got a standard year-end notification of 401(k) conditions - you know, the boilerplate of what all the rules are - from a company I worked for in the 90s. It was the first thing I think I had heard from them in decades, and I almost threw it away.
Instead, I went through all the rigmarole of getting a user ID, and discovered that I still had a 401(k) floating around from the 90s that I had not rolled over that was worth about $8000. I’m leaving in for now, but I figure at some point we’ll cash it out and have a very nice vacation.
I found out yesterday that I had been letting Fidelity charge me 0.64% as a management fee for my Fidelity Freedom Fund 2050 and if I had had it managed a different way it might have been something like 0.2% instead. Which has cost me over $7,000 over the course of a decade. I’m not sure that my own management or some other method of management might not have inadvertently led to equal losses in some other way, though.
Isn’t that odd… that’s exactly what happened to me. Anxiety beforehand (thanks, Puritan Work Ethic), nothing but bliss afterward.
My wife retired and immediately started seasonal work and volunteering at church. Meanwhile, the pastor called me and asked “Now that you’re retired, do you want to help out in the church office?” “Absolutely not!” “Okay, that’s fair…”
It’s been 9 months now for me. I really liked my job. I don’t miss it in the slightest.
The idea of part-time work or volunteering for anything is unthinkable to me. You mean answer to someone else’s priorities and schedules? In exchange for what exactly? A warm feeling in my midsection? I can get that by peeing in my pants. And with less driving.
I retired in October 2022. I was just reflecting last night on how much better my life is now. I am genuinely happy. I do volunteer work for a couple of organizations, one of which I think I will drop in a couple years because it’s been more annoying than fun, but that’s the thing - I can do that, no harm no foul. Being in the driver’s seat over my own damn life is pretty sweet.