In attempting to calculate a California estimated tax payment to cover this year's Fidelity 401K RMD (for which no state tax will be withheld), I referred to the IRA RMD check I just received from Morgan Stanley. MS withheld 686.61 for federal and 103.00 for state. I calculate that the amount MS withheld for state is approx. 15% of the federal amount withheld. (I read on a financial website chart that CA state RMD tax is 10% of the federal tax.) I believe MS withholds 15% to be safe. Can it be that simple? Should my CA estimated tax payment be approximately 10 to 15% of the federal tax owed on any RMD distribution? Thanks.
Q. Should my CA estimated tax payment be approximately 10 to 15% of the federal tax owed on any RMD distribution?
A. No. The state tax is a percentage of the income (the RMD amount), not the federal tax. The percentage would be your marginal (top) tax rate. To find that rate, see:
https://www.nerdwallet.com/article/taxes/california-state-tax
Since the top CA rate is 12.3%, 12.3% (of the RMD amount) would be the absolute "safe" amount.
There are income tax calculators online for both federal and California income tax which would give you a good idea of your tax liability.
I searched for an hour on Google and only found RMD distribution calculators. I know the amount of my RMD. That gets calculated by the RMD holders. Thanks.
Did you already get the RMD? Why aren't they taking out state withholding?
Hi Volvo Girl: No, that 401K RMD check will be sent toward the end of November. Fidelity's new "policy" is to withhold fed taxes only but only after submitting the W-4P form for periodic distributions which I did. Morgan Stanley, on the other hand, withheld state taxes, too, and I have that check. Thanks.
Q. Should my CA estimated tax payment be approximately 10 to 15% of the federal tax owed on any RMD distribution?
A. No. The state tax is a percentage of the income (the RMD amount), not the federal tax. The percentage would be your marginal (top) tax rate. To find that rate, see:
https://www.nerdwallet.com/article/taxes/california-state-tax
Since the top CA rate is 12.3%, 12.3% (of the RMD amount) would be the absolute "safe" amount.
I searched online to learn where I saw the chart that said the financial institution withheld 10% of the federal tax withheld (in California). I misunderstood it. It was saying that by DEFAULT the IRA holder will usually withhold that 10% amount if NO other direction is given by the client. I was thinking that was all I owed. So, looks like I will need to make an estimated tax payment to the state on both RMDs. Thanks for the help.
For closure, the RMD check finally arrived via mail (after I asked them to deposit directly into my bank). NO state or fed taxes were withheld. When I called to ask why the default amount of 10% that they told me about was NOT withheld, they replied that it was my failure to write in an "additional amount of taxes to be withheld" on the W-4P form. I guess their definition of additional differs from mine. I am now making estimated tax payments to both fed and state. And last week I successfully moved my 401K funds OUT OF FIDELITY. Never have to deal with them again (of course unless the 1099-R arrives, and it is incorrect.)