Retirement tax questions


@NCperson wrote:

 

without form 2210 and 2210ai, the IRS really doesn't know the income was "lumpy" and they otherwise assume 1/4 of the income occurred each quarter.   The penalty is then determined based on smooth income by quarters and the timing of any estimated payments. 

 

 


Specifically here, the 1099-R will show the same amount regardless of whether the taxpayer withdraws (for example) $5,000 per month or $60,000 on November 15.  By default, the IRS assumes the income was evenly distributed, so they will be looking for estimated payments in April, June and September. 

 

@fanfare 

"Me: "IRS already knows your extimated tax payments per your account with IRS."

 

This is precisely the problem.  Suppose there are wages, or a pension or social security, with withholding, plus a large lump sum IRA withdrawal in the 4th quarter.  The IRS will assume the IRA withdrawal was also evenly paid over the year.  Looking at the regular withholding, it won't be enough to cover the tax on the lump sum IRA withdrawal, so the IRS will determine that in addition to the regular withholding on the periodic income, there should have been quarterly payments made in April, June and September to cover the additional tax on the IRA.  The IRS doesn't know the IRA was a lump sum in the final quarter unless the taxpayer uses form 2210AI.