Withholding after working part year and then retiring

[etonline1]

So my wife and I retired her in Mar. and me in May. Now that we are retired we have income from a State retirement plan and SS. 

1)I do not want to get hit with a fine from the IRS for not withholding enough. I am having Single 1 with held from my state pension.  How can I check that is enough?

2) My employer's 457 and 401B lost significant amouts this year and I rolled them both over to my 401K directly, how does that loss show up?  

3) Any advive on how/when to roll some of my 401K into a Roth.....I am thinking next year when are incomes on truly lower?

Thanks for any advice you can give me. I know this is ballpark as I don't feel comfortable listing amount of $. but we are a middle class level.

Ed

[KochuK · Accepted solution]

Hi Ed,

1) I recommend fill out Form W-4P for the state retirement plan and W-4V for the SS.

Form W-4P Withholding Certificate for Periodic Pension or Annuity Payments

https://www.irs.gov/pub/irs-pdf/fw4p.pdf

Form W-4V Voluntary Withholding Request

https://www.irs.gov/pub/irs-pdf/fw4v.pdf

For W-4V, you may choose to have the payer withhold federal income tax of 7%, 10%, 12%, or 22% from each payment, but no other percentage or amount.

Since this is your retirement year and there are many pieces of income data,  please use

TurboTax Tax Calculator 2021 to pro forma tax year 2022

https://turbotax.intuit.com/tax-tools/calculators/taxcaster/

to see if you have paid in enough for the overall  2022 tax liability.

2) A rollover of a pretax retirement account to another pretax retirement account, in general, no loss is recognized and deductible since they are "pretax".

3) Converting from a pretax 401K to a Roth IRA is a taxable event. In general, a good time to convert is when the market is down (your pretax account has lost value), and /or you income is unusually low (next year when you only have retirement income), and/or you have a large itemized deduction.

Again you can use TurboTax TaxCaster to pro forma tax year 2023 to weigh the impact of the potential conversion.

Hope the above helps.

[melj1]

You have several good questions and we will attempt to answer them:

1. Your employer is required to withhold state (and in some cases, local) income taxes. When you file your annual return in your new state, that state will contact your employer to find out why they didn't withhold any taxes. If you are retiring (after reaching age 62) the underpayment was due to reasonable cause and not willful neglect, the law allows the IRS to waive the penalty. You should try to estimate your current tax bracket on you new income level. You can try to do an estimated tax return based on the income you expect this year. If the tax works out as an overall tax rate of 15%, you should have state pension withhold 15%.

2. The loss on tax deferred retirement plans shows up in the amount you are eligible to withdraw or rollover to another plan. As it is a smaller amount, any taxes will be less. You do not report any capital losses. 

3. It is a good time to convert retirement funds to a Roth when the assets are worth less, such as now when the stock market is down. You will also would like to do it when you are in a lower tax bracket. You may wish to speak to a financial planner on how to optimize moving to a Roth at this time.

[etonline1]

Hi thanks for the helpful answer.

So I did the tax caculator. and shows I should get 7,000 back. Which makes me wonder is there a quarterly amount we still need to meet?

Thanks

Ed