Can I choose to pay estimated tax ?

From IRS Pub 575:

Your retirement plan distributions are subject to federal income tax withholding. However, you can choose not to have tax withheld on payments you receive unless they are eligible rollover distributions. (These are distributions, described later under Rollovers, that are eligible for rollover treatment but are not paid directly to another qualified retirement plan or to a traditional IRA.) If you choose not to have tax withheld or if you do not have enough tax withheld, you may have to make estimated tax payments.

Form W-4P has such an option.

I wonder what the administrator of the pension plan will allow. Usually they like to make equal monthly payments and you will be throwing a monkey wrench into their well-thought out procedures.

I am not a tax expert, but I never had income tax withheld by the payer whether a pension fund, or an IRA dispenser. I have not gotten in trouble with the IRS for doing so.

It postpones by a bit, having to turn over the money to the Government. If you can afford it and arrange it so that the payment is on the last day of the year, you do not have to pay until April 15 of the following year, It will take someone more knowledgeable than me to make sure there is no gotcha in the tax code.

Bill

Ah, but there is a monkey wrench. Let's say you owe $5,000 and pay it before Dec 31, AND that you were required to make estimated tax payments quarterly. You will still owe the underpayment penalty on each of the first three quarterly amounts.

Good software will automatically figure this for you given the right inputs.

ChEAr$, Harlan Lunsford, EA n LA

If the income is all on the last day of the year, there are no quarterly estimates due except the final one.

Unfortunately for Salmon Egg, that's January 31 (so you'd do better getting all the income January 1 and paying equal quarterly payments).

Seth

Quite true, if one uses the alternate method of figuring the penalty, there will be none IF the final estimate is paid by January 15th, not 31st.

ChEAr$, Harlan Lunsford, EA n LA

Every year it seems, that most of my mutual fund distributions occur in December. I play with the idea of filling out a form, whose number I do not remember, for reducing penalties for late estimated tax payment. My income is such that the saving is not worth this trouble. I end up paying a bit more than I have to.

Although I readily admit to not being a tax expert, I believe that this form allows you to pay tax on April 15 if you do not know in advance what the income is going to be.

Bill

If you are more than $1000 in arrears, the IRS will compute the tax penalty automatically for you, using the short method method on form 2210 which assume income evenly distributed throughout the year. You may save a few penalty dollars by computing the uneven income method. But you have to submit the 2210 form with your taxes then.

In years I suspect I may be liable for estimated taxes, I print snapshots of major income sources at the end of each quarter. Lots of accounts now dont keep a full 12 months of statements online, making it tediously to collect this information.

Form 2210 is the one that I did not remember. If I use a tax program like TurboTax, it is able to calculate the penalty based upon uniform income flow throughout the year. But that is not the situation for me.

I typically get a small mutual fund distribution in June and a large one in December. In addition, on average. If you cash in mandatory distributions from IRA by converting to taxable mutual funds after the last fund distribution, that distribution does not show up until the following year.

If I understand the workings of 2210, tax on income in December does not have to be paid until April 15 of the following year.

As I grow older, the burden of paper work is becoming more overwhelming. There is a lot of detail to form 2210. I would like to see a way in which I could divide my income into two parts. The first is the part that is uniformly distributed such a Social Security and bank interest. The second part consists of the more episodic income such as IRA distributions and mutual fund distributions that are concentrated toward the end of the year.

Is there a way to take the total income and subtract of the episodic income and use the difference to distribute uniformly for the year in

For me, the difficulty comes when form 2210 requests things like adjusted gross income throughout the year. How do you calculate such things at intermediate times? Maybe that is a separate question I can ask on this forum.

In end, I usually take the easy way out and pay a bit more in tax than I would using better strategy. The older I get, the more likely it becomes that I will have sufficient income to live my life out. The small amount of extra tax I pay is well worth it for the privilege of having lived in a wonderful country.

Bill