Using Year End Lump Sum Distribution to cover Estimated Taxes

Hello, and thank you in advance for any help you can provide.

I have a couple of clients who are now very elderly and are forgetting to make timely estimated income taxes. Is it ethical/legal to ask their qualified plan administrators to withhold up to 100% of their YEAR END lump sum distribution as federal and state income tax for that year?

Reply to
mmurrell
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"mmurrell" wrote

I'm pretty sure you can't ask them without a valid POA to handle your client's financial matters. You can have them ask the plan administrator to do so, even as they sit in your office while on the phone.

Side note: I suspect they may need to have a positive check amount to run the distribution, so expect them to reduce withholdings to something less than 100% to accomplish that.

It may also be time to see if you can get the children involved in their parent's financial affairs.

Whatever you do, get it in writing, cause they might forget they agreed to it.

Reply to
paulthomascpa

I don't know about that approach, but a lot of my elderly clients choose to pay their entire estimated tax with the first (April) estimated tax payment. In some cases the child (also a client) comes too, and writes the checks right there in my office, ready for the client to sign. It provides a lot of emotional relief for them to know that it's all taken care of for the next year. And with the low interest rates now, they aren't giving up a lot by doing it that way.

Reply to
Tom Healy CPA

Thank you for the great answer. I will have the client make this decision to withhold or not. I was concerned with late tax payment pentalies. Instead of making 4 quarterly estimated payments, the client could use a qualified plan that has a required minimum distribution, and force the entire RMD into federal and state income tax at the END of the year.....when the lump sum distribution will be distributed.

Great point, I would have never thought of that.

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Reply to
mmurrell

tax penalties. The reason is that withholding is presumed to be spread out equally over the entire year.

Reply to
Stan K

I use a similar strategy for an elderly person. Since she has an IRA RMD, I have federal withholding equal to the top of the 15% bracket. Then toward year end a Roth conversion calculated to put her income right at that level. Her return is then within a couple hundred dollars of being dead on.

Joe

Reply to
JoeTaxpayer

Paul's comment is worth repeating. It's even more important that someone's alert when the children aren't close by.

I learned that it was time to get involved in my parents' finances during a visit. My father asked me to take a look and see why they had so much money in their checking account. It turned out that when he balanced the checkbook each month he totalled the outstanding checks, then instead of subtracting them from the statement balance he added them to the checkbook balance. During that visit we got things arranged at the bank so I could monitor the accounts over the internet.

Phil Marti VITA/TCE Volunteer

Reply to
Phil Marti

I suspect you will find that she can't e-file if you withhold more than half the gross distribution.

Reply to
Arthur Kamlet

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