Posted on 04/13/2017 6:51:39 AM PDT by Oshkalaboomboom
This is a tax question for next year, not this one. I take 3 or 4 distributions from an IRA. Each time they ask me if I want taxes withheld but I say no. It's not a lot of money, less than $20k/year but at what point will the IRS start to penalize me for not paying a portion in advance? The ideal scenario would be for me to pay whatever I owe each year at tax time but I'm afraid they will fine me more than I would even owe for not paying taxes X amount of times during the year. Any info on this? TIA.
If at the end of the year, you owe more than $1,000 you will be subject to a penalty unless you qualify for a safe harbor exception. The penalty is currently computed using 3% per year or .25% per month.
I don’t think this is high on their priority list so I would not sweat it.
IIRC, the trigger limit is $1000.
Then you have to submit a letter explaining why it is over $1000.
If they like your excuse your ok.
If they don’t, you will pay a fine that they determine at that time.................
Required Minimum Distributions (RMDs)
IRS Cracks Down on Retirees Who Don’t Take Required Distributions From IRAs
Not withdrawing the full amount will result in a steep penalty.
I increased my W-4 total to reduce withholding, such that I had to pay the IRS around $800 at the end of the year.
After doing this for two years, I (along with my employer) got a letter from the IRS, stating that for now on, they would withhold as if I were single with zero dependents.
After a lot of groveling, I got their permission to claim a few dependents...but it was a painful process.
Anyway, “I would not sweat it” and the IRS normally don’t go together.
You don’t get penalized for not paying your taxes in advance, estimated taxes, etc.. You only get penalized when you don’t pay. When you have withholding done all your doing is giving the Government a no interest loan on your money.
$1000 is when they assess a penalty and the IRS is the one government agency that will do its job.
Turns out they were going to charge a service fee of $160. So I canceled the transaction and mailed in a check. I had to chuckle when I saw a message there urging people to go paperless.
Call or visit H&R Block, or IRS or a Tax service.
It’s not expensive and will save you the headaches.
That’s incorrect! Trust me.
If on April 15 you owe more than 1000 bucks in taxes because you underpaid during the year, there are penalties that are automatically added to your liability. They’re not brutal, but more than the income you got from a normal investment. It’s not even a situation where you’d have to be audited to get caught. It’s just a done deal right in the calculations.
You have to be 70 1/2 before RMDs kick in. I'm only 62. I retired at 61 and am paying myself the equivalent of SS from my IRA until I'm 67 then I can collect my full amount.
Then I think you have your answer so why ask?
I have the feds withhold from my 401K distribution, usually more than is necessary. It’s a convenient way to do withholding without making quarterly payments. I can see where that wouldn’t be desirable for someone who wants to keep as much money as possible in their 401K
That is simply false. If you owe more than $1,000 when you prepare your return, the IRS can assess a penalty for failure to pay enough through the year. If you receive income from a source that doesn’t withhold, you are responsible for making quarterly estimated tax payments. Failure to do this might result in assessment of penalties.
Thank you.
You did not explain your status in your post.
Not true. See line 77 on form 1040 and form 2210.
“Anyway, “I would not sweat it” and the IRS normally don’t go together.”
Heh. I forgot to put my two kids’ social security numbers in next to their names, and got a bill for 2,000 bucks instead of a 2,000 refund.
I immediatly (within two weeks) responded to the demand letter and provided a full explanation, which is what they wanted. I had called on the phone first and got the name of the phone person and did exactly what she told me to do.
I kept getting threatening letters interspersed with letters that said “we got your letter but it will take us another 45 days to deal with it” of which I got at least two.
Meanwhile I went to a field office where the person who helped me said “it’s fixed”. But I kept getting the threatening letters. I went back to her. She said “Oh, those are automatically generated by a machine. Ignore them.
I told her “I don’t ignore letters that threaten to do things to me (levy on my State tax refund, for starters) if I do not comply. She told me she could not do anything except make a note in the file to delay enforcement.
Finally I got an official letter saying the matter was cleared up and I’d get my refund in 6 weeks. We are now in week 5.
I look at the “penalty” for not paying as you go, of 3% per year, as basically the IRS treating your failure to pay as a low-interest loan from the IRS to you. Which it isn’t, but they’re not treating it as a crime.
If they REALLY wanted to make sure you paid on time, instead of the end of the year, they’d impose a “fine” of a flat amount in the hundreds of dollars and charge you a higher rate.
Well I never make quarterly payments. Why should I give them any money until it is actually due? That is a scam.
I have an Aunt who takes a IRA distribution and the taxes are paid when due, no withholding and no penalty.
The IRS is a scare organization. Monies for taxes are due when their due. Anything else is merely to coerce you to pay early to keep the government going.
There are exceptions to the levying of the penalty for underpayment. You may have qualified for one of these or you may have flown under the radar and just gotten away with it because you weren’t caught. In either case, you are incorrect. Tax on income is due when the income is earned. Automatic withholding for wages makes this moot for most. The IRS allows taxes to be paid quarterly for income not subject to automatic withholding. The end of year return is NOT your tax bill for the year. It is an adjustment to account for overpayment or underpayment of taxes throughout the year.
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