RMD will be large can I pay the tax liability on the amount from the proceeds before 12/31/25

[forologia45]

I just learned my RMD on my IRA will be close to 100k for 2025.

Can I pay the tax obligation, which will be over 30k, via IRS Direct when I sell the 100k worth of stock shares to avoid a penalty for not having had the taxes withheld by my brokerage company?

Thanks for your advice

[CatinaT1 · Accepted solution]

Absolutely. This will be considered a quarterly payment and you will account for that payment on your 2025 return. This is a good move.

[rjs]

Why not have tax withheld by the brokerage when you take the distribution? That's the simplest way to cover the tax, and it avoids possible additional calculations and forms that might be needed to avoid a penalty when you file your tax return.

There is a distinction between selling the shares and taking the distribution. You can sell stock in your IRA and leave the proceeds of the sale in the IRA. That would not be a taxable transaction. You incur the tax when you take money (or stock) out of the IRA.

You mentioned making the payment "when I sell," but you also said "before 12/31/25." Before December 31 might not be good enough. You have to make the payment by the payment date for the quarter in which you take the distribution. For example, if you take the distribution in June, July, or August you have to make the payment by September 15 to avoid a penalty.

If you use Direct Pay, be sure to specify that it's an estimated tax payment for 2025.

[rjs]

If the brokerage allows you to specify an amount or percentage of tax to be withheld from the IRA distribution, you could have enough withheld to cover the tax on all of your other income as well as the IRA distribution. That would eliminate the need to deal with the W-4P that you asked about in another question. Have enough withheld from the IRA distribution to cover your total tax for the year.

[Mike9241]

since you may have no idea of what your 2025 federal and sate income  taxes will be the IRSand usually the staes offer a safe harbor.

have enough withheld to equal or exceed 100% of your 2024 tax which should be known if you've filed. That jumps to 110% for federal if your adjusted gross income for 2024 was $150,000 or more (1/2 that if married filing separately) this is merely to avoid penalties for not prepaying enough of your 2025 taxes. you could still have a substantial amount due at filing time. some taxpayers do not like owing a lot come 4/15. if you are one of them then increase the amount withheld if possible. 

withholding has an advantage over estimated tax payments. despite the period actually withheld 1/4 of the total is, by default, deemed paid each installment period whereas estimates only count for the period in which made.