If taxes are withheld on an RMD distribution, then it counts as if the taxes were paid throughout the year, so removes the need to do estimated quarterly tax payments (as long as safe harbor is met). The withholding needs to be less than 100% of the distribution.Thank you! They have some similar. NY funds that I have explored in which he can do the same. I also thought about Roth conversions as you mentioned. To clarify, if he gets just shy of 17k on the RMD he can put aside what he would owe on tax out of the same 17k from the distribution. Whatever is left over he can use to determine how much that could cover tax wise for a Roth conversion and use it to do that?I always seem to have some reason for spending my RMD, mostly on taxes for the RMD withdrawal (33.3%), QCDs (10-20%), and the tax on Roth conversions. If not, I would invest it in a tax-favored bond fund, such as the TRowe California tax-free bond fund (PRXCX).
For example, suppose that my RMD is $20,000 and I donate $2000 of this in QCDs. My marginal tax rate is 24% federal and 9.3% state. If I withhold that percentage ($6000) for taxes from my taxable RMD distribution, then I have $12,000 remaining to be invested into a taxable account.
OTOH, if I withhold 90% from my taxable RMD distribution, then I will be withholding an extra $10,200 to cover taxes on a Roth conversion later this year, and have $1800 to spend on the uptick of IRMAA (2 years forward) for increasing my MAGI for this year. Assuming I stay within the same marginal tax bracket (while climbing into a higher IRMAA tier), the extra withholding on the RMD distribution will cover taxes for me on a $30,600 Roth conversion.
The calculations for deciding how much extra taxes to withhold for a Roth conversion depends on having a close estimate of your income for the year. And Roth conversions don't make sense for everyone.
Statistics: Posted by RetiredCSProf — Sun Oct 06, 2024 10:18 pm — Replies 28 — Views 1729