Yes, there is some penalty forgiveness, but do check the current rules! Tax software will calculate this for you.
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Hereâs the language in the IRS website; we havenât needed to worry about the 110% consideration so wasnât aware of that, sorry.
Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after filing their return or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is less. There are special rules for farmers and fishermen and Higher Income TaxpayersâŠ
If your adjusted gross income (AGI) is more than $150,000 ($75,000 if married filing separately) you are required to pre-pay 90% of the tax for the current year or 110% of the tax shown of the return for the prior year, whichever is less.
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Going forward, you can make an estimated tax payment by Jan 15th, 2024 (for 2023 tax year) without penalty if you run your numbers and find you need to meet the 90%/110%/110% test. H generally adjusts our withholding mid-year, but we got hit with a lot of capital gains at year-end, which meant we had to send in additional $$ to pass the 90% test. Since we lost so many tax deductions a few years ago, we now get hit with this every year.
If you have a very PT job, your earnings may not have met the criteria for withholding in the first place, even though they are indeed taxable. When I was working, my income was withheld at a low rate because I didnât make much. Add it to Hâs income, and our combined tax rate was higher, so I was seriously underwithheld. You can request that more be withheld on a Form W-4.
As you figure out income flows and tax withholding in retirement, youâll figure out what works. If youâre required to make quarterly payments, do it or there are penalties!
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Thanks. I made estimated state payments last year, but I just didnât notice they only took out a very small amount in federal taxes. I am correcting for this year.
Iâm not really sure what situation weâre in, if we should make quarterly tax payments, or can just pay throughout the year. We get the appropriate amount deducted for taxes from our pension, but will have to pay taxes on a large amount we took out from our 401Kâs to buy property a month ago. I was thinking we might have to send in the estimated taxes for that 401K withdrawal this quarter (we didnât get anything withheld), but we were hoping we could just pay it by the end of the year to avoid penalties. What do you think?
Do you use TurboTax? Or any software that will allow you to model your 2023 taxes? The brackets and std deductions changed slightly but not significantly.
It really depends on the size of the 401K withdrawal and how your withholdings fall within the 90/110 ranges outlined in Marilynâs post above.
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Weâve been doing Roth rollovers, hefty quarterly tax payments. Supposedly itâs not worthwhile to deduct the taxes from the accounts. Itâs painful, with some IRMAA impact too for higher medicare cost. Iâd be opposing hubby (and planner) more except I see the wisdom to do this while only one of us is on Medicare.
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If you have enough withheld from your pensions to satisfy the safe harbor, youâre good. Otherwise you should make an estimated payment in April.
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Seems worth it if you can stay in a lower tax bracket. If it pumps you up to the 32,35, or 37% bracket, I donât think it would be worthwhile. It seems like people like to convert soon into retirement because theyâre in low tax brackets.
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I do use Turbotax. The 401K withdrawal was hefty, with no withholding. But we will fall within the 90% range by the end of the year, because weâll pay whatever taxes we need to. I was trying to figure out if I needed to do it by April, and from what @notrichenough said, sounds like we just need to do it by the end of the year.
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Iâm not sure if the safe harbor applies if you get there via estimated payments. You could wind up paying some interest if you wait until the 4th quarter. Thereâs a calculation that happens based on the timing of the income and payments.
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It is confusing. Iâll probably run some scenarios through tax software to see.
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Saw our financial planner today. Starting now, we will be making our charitable contributions from my smaller IRA account. That seems like a smart move!!
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Definitely do this. Plug in the dates of distribution and two potential scenarios (tax paid on two different dates) to see if that makes a difference. I think it does, but Iâm no tax expert.
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Great idea, I donât want to pay penalties, but I donât want to pay early.
Ugh, we bought this property (which we love), but had to use a significant amount of 401K funds. Weâll have to pay taxes on the distribution, but if we take more out of the 401k, itâs at the 37% tax rate. Double ugh. So now weâre trying to figure out the best way to get money. More taxable 401K money? Maybe, but more taxes. Roth? Tempting. Loans? Donât see any cheap money out there. Better job budgeting? Not going to bring enough in. Actually, a 401K loan would be the best option, but being a retiree, my plan doesnât allow it.
Being retired seems to offer us less monetary flexibility, thatâs for sure. Used to be able to just work more and get more income, but thatâs no longer an option.
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AgreeâŠwe actually discussed this with our financial planner today. We squirreled away quite a bit the last few yearsâŠbut now that DH has also retiredâŠhe is still spending like he is earning his full time salaryâŠand he is not. We certainly are comfortable and have some cushion in terms of financial securityâŠbut reallyâŠ
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Our financial advisor told us that this is the time in our retirement where we will be spending more. That things will change, we will slow down and so will the spending.
It was/is hard to spend money when our balances are going down not up. Our financial advisor also said that things in the stock market will turn around, they always have so Iâm very hopeful that they will.
Last year we took that vacation. It was glorious, we were young enough to really enjoy the experience. These are the go, go, go years.
But itâs hard to do. Hard not to worry.
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I simply canât decide if doing Roth conversions is smart or not. I consulted a very good tax attorney, and he wouldnât give me any ârecommendationâ at all, but when pressed he did indicate it might be OK if we donât go above the 24% bracket, and if we can pay the tax ourselves. IF we moved to a no income tax state I think it would be a no brainer. Itâs easier to âwait and seeâ when we have another decade or more before RMDs (and we may not take medicare part B - yet another thing to work out).
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I am glad you took that nice vacation, and I think you should do more while youâre still healthy and active. (Isnât it nice Iâm spending your money for you - lol). Iâm sure Iâve posted this previously, but weâve kind of decided to âblow the wadâ on a couple of vacations in the next couple of years. Multiple work colleagues and friends are having serious health issues, and it really makes us realize we canât take our ability to be active for granted. Weâre trying to hit a couple of the big bucket list places sooner rather than later.
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YesâŠfour vacation trips planned before the end of November. One to visit my familyâŠbut itâs always a fun trip!
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