Using RMD for entire tax owed

[vettd1]

I understand that amounts withheld from RMDs for taxes are treated as taxes paid over the entire year eliminating the need to pay quarterly estimated tax payments. I am wondering if my wife and I  can stop paying taxes on all our income (state pensions, capital gains, interest, and dividends) an pay our entire taxes owed at the end of the year with our RMDs with no penalty as long as we meet safe harbor requirements? 

[ReneV4]

For Federal taxes, this plan works perfectly because the IRS treats tax withholding as if it were paid evenly throughout the year. 

Be sure to take your RMDs by year-end, because a distribution even on January 1 of the following year is considered "late".

However, there are three things to verify before you cancel your quarterly payments:

• If your state treats withholding as a payment on the date of receipt, a large December withholding will not protect you from penalties for income earned in earlier quarters
• If you live in a state that exempts retirement income, your custodian might not be set up to withhold state taxes from an RMD, so be sure to confirm with them
• Ensure your total annual withholding reaches 100% of last year's total tax (or 110% if your 2024 AGI was over $150,000)

Therefore, be sure to check with your custodian if you can withhold an amount for state income tax from your RMD, even if that distribution is exempt from state tax.

[dmertz]

Although there is no requirement for the payers to do so, just be aware that some payers limit the percentage of the distribution that they will permit to be allocated to tax withholding.  Check with the particular financial institution that holds the retirement account.

[SusanY1]

One additional item to consider with this is that you may have to file your return by mail.  Although things could change for future filing years, presently the IRS does not accept e-filed returns when withholding is equal to or greater than half of the distribution amount on a 1099-R.  The taxpayer must file by mail and submit a paper copy of the 1099-R showing this withholding.  

[vettd1]

No to belabor the topic but could I withdraw more the my required "minimum" distribution at and allocate all of it to tax withholding at the end of the year?

[DianeW777]

This will depend on your financial agent and whether they are willing to send in the amount as federal tax withholding. If they will do it, you are allowed to do it.

@vettd1 

[VolvoGirl]

But why would you want to take more than the RMD?   Even though you might have more withholding your taxable income and tax will increase.  So I don’t think the extra withholding will cover the increase in the tax due.   

[dmertz]

I think that VolvoGirl might be concerned that increasing the amount distributed would generally increase your taxable income, so you would have to factor that in when determining the amount that you choose to have distributed and withheld for taxes.  However, if your distribution is larger than your RMD, even though you allocate all of the distribution to tax withholding you could still substitute other funds to perform a rollover of the amount in excess of the RMD (provided that the rollover would not be in violation of the limitation that you are permitted to roll over one distribution in a 12-month period).