From 24/7 Wall St. · Jake FitzGerald · · 2m
Skip Quarterly Tax Payments With One December Move
The IRS treats December IRA withholding as if paid evenly all year, letting retirees skip four estimated payments.
In brief
The IRS treats December IRA withholding as if paid evenly all year, letting retirees skip four estimated payments. Retirees can withhold their entire annual federal tax bill from a single December RMD distribution, and the IRS counts it as paid on time for all four quarters. Originally reported by 24/7 Wall St..
One December withholding beats four checks
Federal tax withheld from an IRA distribution counts as paid evenly across all four quarters, even if withdrawn on December 30. Skip April, June, September, and January payments entirely.
“federal income tax withheld from an IRA distribution counts as if you paid it evenly across all four quarters, even if the money leaves your account on December 30”
How the IRS ratable withholding rule works
Estimated payments are credited on the day they clear. Withholding is different: the IRS treats every dollar as paid one-quarter per quarter, regardless of when the custodian remits it.
Real example: widow avoids four payments
A 74-year-old with a 1.2 million dollar IRA and 22,000 dollar tax bill takes her 45,000 dollar RMD on December 15, withholds 22,000 dollars, and pockets 23,000 dollars. No penalty, no four reminders.
Three safe harbor withholding targets
Withhold 90% of current-year tax, 100% of last year's tax, or 110% of last year's tax if prior AGI exceeded 150,000 dollars. Hit any one and the penalty disappears.
Prior-year safe harbor is easiest
Pull last year's 1040, multiply by 1.0 or 1.1 depending on income, and that is your withholding target. You already know the number.
State rules vary, confirm separately
Most states piggyback on federal ratable withholding, but some compute their own penalty periods. High-tax state residents should verify the state safe harbor independently.
The cash-flow cost is small
Handing the IRS 22,000 dollars in one week instead of 5,500 dollars four times means forgoing interest. At current CD rates, that costs a few hundred dollars at best.
Who benefits most from this strategy
Anyone over 73 taking an RMD large enough to cover the year's tax bill. Also works with Roth conversion withholding, pensions, or Social Security via Form W-4V.
Doesn't help W-2 earners or self-employed
This strategy requires a withholding hook like an RMD or pension. W-2 earners already have paycheck withholding, and capital gains or self-employment income have no withholding mechanism.
Set a November reminder to elect it
The real risk is forgetting to make the election or discovering in late December that the custodian needs several business days to process the change. Confirm with a CPA the first time.
The key point
Retirees can withhold their entire annual federal tax bill from a single December RMD distribution, and the IRS counts it as paid on time for all four quarters.
