Retirement tax questions

Here is a breakdown of how to determine if you’ll need to make estimated tax payments as a retiree:

Step 1: The $1,000 Rule

You and your spouse will generally need to make estimated tax payments if both of the following apply to you:

• You expect to owe at least $1,000 in taxes for 2025 after accounting for withholding and credits.
• Your withholding and refundable credits will be less than the required "Safe Harbor" amount (explained below).

Step 2: Understanding the Safe Harbor Rules

If you meet the $1,000 threshold, you can still avoid an underpayment penalty by ensuring that the total tax paid through withholding and estimated payments satisfies one of two Safe Harbor options:

Option 1: The Prior Year Safe Harbor (Most Convenient for Retirees):  

• This approach is usually the easiest and most practical, especially since your income is lower in retirement. To avoid penalties:
  • Pay 100% of the total tax shown on your 2024 tax return if your 2024 Adjusted Gross Income (AGI) was $150,000 or less.
  • If your 2024 AGI was above $150,000, pay 110% of the tax shown on your 2024 return.

Because your household income in 2025 is significantly lower, meeting the Safe Harbor for your higher 2024 tax bill ensures you won’t face penalties, even if your tax liability for 2025 ends up being much lower.

Option 2: The Current Year Safe Harbor (Less Practical for Retirees)

• You can also avoid penalties by paying 90% of the tax you’ll owe for 2025. However, this method is harder for retirees because it requires accurately estimating your 2025 taxable income, including unexpected factors like Required Minimum Distributions (RMDs), capital gains, and interest. Most retirees stick with the simpler prior-year method.

The simplest way you can meet the Safe Harbor requirement without sending quarterly checks is to use withholding from retirement payments.

Any tax withheld from an IRA, 401(k), or pension is treated by the IRS as if it were paid evenly throughout the year, regardless of when the withdrawal was made.

1. Calculate Your Target: Find the exact dollar amount of 100% (or 110%) of the total tax from your 2024 Form 1040 (Line 24, typically).

2. Adjust Withholding: Instead of writing quarterly checks (Form 1040-ES), you can contact your IRA or pension administrator (or Social Security Administration using Form W-4V) and request a large enough amount of tax to be withheld from your distributions to meet that 2024 target by the end of 2025.

For more information see:

• Use this form for one-time, nonperiodic payments 
• Form W-4V, Voluntary Withholding Request 
• Estimated Taxes: Common Questions 

Please feel free to reach out with any additional questions or concerns you may have and 

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