Estimate tax for dividends, capital gains and RMD

[fuyunling]

Since my retirement, I always paying my estimated taxes evenly throughout the entire year. Because my incomes are mainly from investment and retirement incomes including RMD, some of them are not easy to predict. This year, I had a large amount of incomes from dividends and capital gain distributions at the end of 2024. As a result, I had to pay a larger sum of estimated tax in the 4th quarter than the previous three quarters of the year. In order to avoid tax underpayment penalty, I had to use Schedule Annualized Income (AI) of the IRS form 2210. Below are some of my understandings, which I would like to have feedback from people, who are more experienced than me, here to tell me if they are correct or not.

1. Dividends and capital distributions only become my taxable incomes when they are distributed.
2. RMD also becomes my taxable income when they are withdrawn. (As I always withdraw them at the end of the year, I don't need to pay estimated tax in the first three quarters of the year.)
3. When I use RMD as tax payments, they are viewed as evenly distributed through the entire year no matter when they were being withdrawn.

Thanks in advance for your help!

[BillM223]

You are generally correct.

Dividends and capital distributions only become my taxable incomes when they are distributed.

Yes, Dividends and capital distributions are not taxed until they are received by you.

RMD also becomes my taxable income when they are withdrawn. (As I always withdraw them at the end of the year, I don't need to pay estimated tax in the first three quarters of the year.)

Yes, the RMD is taxable in the year you receive it.

When I use RMD as tax payments, they are viewed as evenly distributed through the entire year no matter when they were being withdrawn.

Because there is no date on a W-2 or a 1099, the IRS assumes that the tax withheld is spread evenly over the year - which is the way that TurboTax treats them.

Although you may know that the RMD was received in the 4th quarter, TurboTax has no way of knowing that. Hence, there is not need to worry about the 2210.

Are you saying that TurboTax created a 2210 for your return?

[fuyunling]

@BillM223 

Hi Bill:

Thank you for your reply.  Yes.  I just got my TurboTax Premier 2024 from Fidelity and eagerly to start working on it once the 1099 and other forms are ready.  I will need to file a 2210 this year and I plan to use TurboTax to treat it.  I used TurboTax filing my 2023 tax return but this year is the first time I need to file a 2210 form because of too much capital distributions at the end of the year.

For the question #2, I was actually meant that for 2210 purpose, are the RMDs being treated as the incomes in the month when they were withdrawn.  Other people have confirmed that is true but it will be good if I have your expert's confirmation.

Regards!

Fuyun