How to enter MRD in Form 2210

[fuyunling]

Dear All:

I am retired and taking Minimum Required Distribution starting a few years ago.  It is a significant part of my income nowadays.  I am taking it near the end of the year every year.  My question is, when I using Form 2210 for my estimated tax, should I treat the MRD as the part of my AGI of the fourth period (Sept. - Dec.) or evenly distributed over the entire year.  I mainly use it to pay my taxes.  As I know, IRS treat it as withholding taxes and treat it as paying evenly over the entire year.  The question is how do they treat if as my income. 

Thanks in advance for your help!

[dmertz · Accepted solution]

When annualizing income on Schedule AI for Form 2210, retirement distributions are income for the tax quarter in which you actually received the distribution, in this case, Q4.

[fuyunling]

@dmertz 

Thank you very much!  You have solved all of the problems!

Fuyun

[fanfare]

"As I know, IRS treat it as withholding taxes and treat it as paying evenly over the entire year.  "

THis is true only for withholding, not for estimated tax payments,

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What is your 2024 tax ? do you have withholding taken in 2025?
If your total 2025 withholding alone is 100 % of that amount ( 110% if your 2024 AGI is over $150,000),

You don't need to make estimated tax payments. This is the prior year's tax rule.

If you got a 2024 refund this year and 2025 earnings are comparable then your 2025 withholding may already meet the prior year's tax rule

If you tell the custodian to withhold tax on IRA distribution, that can work also if you are retired.

@fuyunling 

[fuyunling]

"If you tell the custodian to withhold tax on IRA distribution, that can work also if you are retired."  Yes.  This is what I have been doing.  Thank you for your clarification!

[fuyunling]

Actually, what I am thinking about is, as I uses all of my RMD as tax payment, at least 80-90% of taxes for my total AGI are covered.  Because all of my RMD and most of the capital distributions and dividends are in the fourth quarter every year, for the first three quarters (or the three 2210 "periods") I don't need to pay any estimated taxes with annualized Income estimate tax payments.  This will simply a lot of planning and effort.  What do you think about this?  Will it work?  Is there any pitfall for this strategy?

[fanfare]

What is your total 2025 tax ? Do you have withholding taken in 2025?
If your total 2025 withholding alone is at least 90 % of that amount ,

you don't need to make estimated tax payments. 

This is the current year's tax rule.

Total tax includes SE tax, Additional Medicare tax and/or Net Investment Income Tax, if applicable.

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You know what your 2024 tax was, but you may not know what your 2025 tax is until it is too late.

@fuyunling 

[fuyunling]

I have my 2025 RMD taken.  It is probably not 90% of my 2025 tax, which I don't know what will be anyway.  However, I am pretty sure it will meet the requirement of the 90% of the required estimate taxes of the first three periods according to the 2025 form 2210 AI considering the amount of RMD and the possible concentration of the dividends and capital distributions in the 4th period of 2025.   This is why I think I should be able not to pay the estimated taxes of the first three periods. 

[dmertz]

Particularly because my Q4 income can vary wildly due to unpredictable year-end mutual fund distributions, I make estimated tax payments to guarantee meeting the safe-harbor of 100% (or110%) of the precious year's tax liability.  That might mean overpaying for the earlier quarters, but it avoids a possible need to prepare Schedule AI.  I have about a 30-page federal tax return and preparing Schedule AI still more than doubles the effort needed to prepare the entire tax return.  I'm willing to pay taxes a bit early to avoid the possibility of having to prepare Schedule AI.