For Federal taxes, this plan works perfectly because the IRS treats tax withholding as if it were paid evenly throughout the year.
Be sure to take your RMDs by year-end, because a distribution even on January 1 of the following year is considered "late".
However, there are three things to verify before you cancel your quarterly payments:
- If your state treats withholding as a payment on the date of receipt, a large December withholding will not protect you from penalties for income earned in earlier quarters
- If you live in a state that exempts retirement income, your custodian might not be set up to withhold state taxes from an RMD, so be sure to confirm with them
- Ensure your total annual withholding reaches 100% of last year's total tax (or 110% if your 2024 AGI was over $150,000)
Therefore, be sure to check with your custodian if you can withhold an amount for state income tax from your RMD, even if that distribution is exempt from state tax.
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