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I've always had mixed feelings about automated payments from a bank account.
I know there can be two ways...pushed automatically to the entity...or pulled from the account by the entity.
I've given very -- very-- few entities the OK to pull money from my account.
Car payment (which I haven't had in 18 years), mortgage (which I haven't had in 6 1/2 years), and car insurance (which I've now just started paying for the year myself. So not even that anymore.)
Now, putting quarterly tax payments on a credit card -- THAT I maybe, could sort-of see doing.....as I do have small amounts automatically charged now (yearly Microsoft subscription and monthly credit monitoring service, so minor not even 15.00 a month.)
But large sums of auto-pay from an actual account? Uh, no.
("Large" is relative, I know.)
I have an accountant do my taxes. So will eventually sit down with him. Been with him for years after my mom died. And to this day I'm not sure how "up" he is on things. Her return was basic. Mine is: single, no deductions, one job. Regular accounts.
Sometimes I've wondered why I don't go back to doing it myself. But with retirement in a couple of years -- and the fact that those years -- the last working year, and the first couple of retired years -- the retiree's financial situation can be more fluid for all those years -- I'm thinking now may not be the time to go back to doing it myself....when I can pay him to project my taxes, project my RMDs, vulerability to the tax torpedo, how much room I'll have in my brackets to covert to Roth, etc.
Although, you know me, of course, I'll do my own calculations and research. Kind of like coming here. And no, I don't just go with what people tell me on the Internet.
The last time I did my own taxes I had just. gotten. into. filing online through some free IRS, and also state revenue portal -- I think.
I pay estimated quarterly taxes on my pension. I feel more control over when I'll pay it than if it were to be withdrawn automatically. Like others, I'd rather owe some small amount than wait for a refund.
Decades and decades ago I had switched to the I'd rather owe camp.
And, yes, I knew that meant I had underpaid -- by 50 to 100 bucks.
But I'm telling you, when all my friends were talking about their 2-3K refunds -- even though I knew they'd given Uncle Sam a free loan, and I had more money in my paychecks during the year....even if it was only $75 that I owed -- psychologically -- I still didn't want to write that check to my uncle. It could have been $50 I and still hated giving that money back. I tell you I hated writing that check.
So that's when I swung back to..."OK, get a small refund, $800 or less." That way I'm not hating to write a check, and I feel that's close enough to break even that I get a few hundred bonus bucks to spend or add to savings.
I'm leaning to that being my take in retirement also. But the over-65 deduction boost and Roth conversions will be another wrinkle.
A friend retired two years ago, and hasn't had two tax years the same yet.
First year she worked until April and pension started.
This year she added Soc. Sec.
For now, I think she said her 401k is still where it was.
So like I said, she could have at least 3 or 4 years in a row where her tax situation is different.
And I'm just realizing that could likely be me, also. UGH.
It's just so different from working, where for decades a person's tax situation could be the same....and almost on auto-pilot.
I've always had mixed feelings about automated payments from a bank account.
I know there can be two ways...pushed automatically to the entity...or pulled from the account by the entity.
I've given very -- very-- few entities the OK to pull money from my account.
Car payment (which I haven't had in 18 years), mortgage (which I haven't had in 6 1/2 years), and car insurance (which I've now just started paying for the year myself. So not even that anymore.)
Now, putting quarterly tax payments on a credit card -- THAT I maybe, could sort-of see doing.....as I do have small amounts automatically charged now (yearly Microsoft subscription and monthly credit monitoring service, so minor not even 15.00 a month.)
But large sums of auto-pay from an actual account? Uh, no.
("Large" is relative, I know.)
I have an accountant do my taxes. So will eventually sit down with him. Been with him for years after my mom died. And to this day I'm not sure how "up" he is on things. Her return was basic. Mine is: single, no deductions, one job. Regular accounts.
Sometimes I've wondered why I don't go back to doing it myself. But with retirement in a couple of years -- and the fact that those years -- the last working year, and the first couple of retired years -- the retiree's financial situation can be more fluid for all those years -- I'm thinking now may not be the time to go back to doing it myself....when I can pay him to project my taxes, project my RMDs, vulerability to the tax torpedo, how much room I'll have in my brackets to covert to Roth, etc.
Although, you know me, of course, I'll do my own calculations and research. Kind of like coming here. And no, I don't just go with what people tell me on the Internet.
Just a few random comments here:
1. I go to my bank's website and give instruction to the bank to make payments on all kinds of routine things such as utility bills as presented by the utility company. I don't have to do anything other than write it down in my checkbook in order to keep track of the balance.
2. I also have many recurring bills such as insurance companies, automobile license fees, doctors, etc. set up in my online bank account. All I have to do is go to my banks website, log in to my account, write in the amount to pay to the vendor/company and hit SEND. VOILA! They will send a check for the amount that I have directed them to send and they pay the postage or send it electronically. Easy peasey. Doesn't cost me a cent.
3. I gave up writing and mailing checks (except for REALLY BIG EVENTS such as buying a house or something like that) at least 15 years ago, and I'm damn glad that I did. Now, I can just click on my bank's website, type in a couple of numbers for the appropriate recipient, and BINGO they send the funds. It couldn't be easier. And in 15 years, I haven't had the first complaint about anyone not getting the funds that they were expecting on time and in the amount that I specified. No need to keep writing out and sending checks by snail mail. That is so last century. Get with the program, man, and save yourself a lot of time and effort. You'll thank me later.
Which do you do? How has it worked for you?
Why did you decide on one versus the other?
Me:
I helped my retired mom with her finances. Now I'm thinking ahead for when I retire.
Mom made quarterly payments. And when she got dementia I made sure they were paid.
And I just didn't like having to remember that.
I'm single no kids. So looking ahead, I may not have someone dependable who can seamlessly step in and keep the finances from falling apart.
(Yes I have a will, POA, Med Directive and all that and my executor/POA knows she's been named. But that's still not the same as having a loving person who already knows your finances so if you get sick they don't mis a beat with making sure your bills get paid, etc.)
So as much as I hate to have the taxes withheld (my gross retirement income sure looks a lot better than the after-taxes amount)...I don't want to pay quarterly either. And since in this instance I won't be able to have my cake and eat it, too....I'm leaning toward just have taxes held from my pension and Soc Sec. And I'll have a little bit of other income from which taxes cannot be withheld.
How have you handled taxes in retirement?
I used to be self-employed, so I paid my own estimated taxes for about 20 years. I simply continue doing the same in retirement. My taxes are now so small (relative to what I used to pay) that I can pay the entire annual tax with the first installment, and there is regularly a carryover of overpayment into the next year (to the extent that I actually never made a new estimated payment since I retired in 2020 - I have had enough overpayment to carry over into tax payments for 3 years. The massive difference in my income, and therefore taxes, pre-retirement and post-retirement, did trigger an IRS audit this year - they couldn't believe that my new income (ie, just passive income in early-ish retirement) dropped so much, so they thought I had to be hiding something :-). After a lot of back and forth, they had to admit everything was as I had reported it :-).
Which do you do? How has it worked for you?
Why did you decide on one versus the other?
Me:
I helped my retired mom with her finances. Now I'm thinking ahead for when I retire.
Mom made quarterly payments. And when she got dementia I made sure they were paid.
And I just didn't like having to remember that.
I'm single no kids. So looking ahead, I may not have someone dependable who can seamlessly step in and keep the finances from falling apart.
(Yes I have a will, POA, Med Directive and all that and my executor/POA knows she's been named. But that's still not the same as having a loving person who already knows your finances so if you get sick they don't mis a beat with making sure your bills get paid, etc.)
So as much as I hate to have the taxes withheld (my gross retirement income sure looks a lot better than the after-taxes amount)...I don't want to pay quarterly either. And since in this instance I won't be able to have my cake and eat it, too....I'm leaning toward just have taxes held from my pension and Soc Sec. And I'll have a little bit of other income from which taxes cannot be withheld.
How have you handled taxes in retirement?
I have taxes taken out of my Social Security benefits. So far, taxes owed are same or less than that amount.
When I do a conversion from IRA to Roth, sometimes I withhold the taxes from the conversion, and sometimes I've ascertained it'll be covered by my SS tax withholding.
For me, easy, no-brainer procedures are the way to go. No quarterly payments, no deadlines.
If your taxes are reasonably small, just pay (prior to April 15 current year) 100% of your last year's tax liability as the whole estimated tax for the current year. Even if you undershoot, ie, owe more tax this year than you paid in ES tax, they won't penalize you if you paid the same you owed last year as the whole ES tax for this year.
If your taxable income is over a certain 6-digit figure, then you have to pay 110% of last year's tax liability in ES taxes for this year, to avoid penalty if you underpay for this year.
I don't know if this is clear. Just pay 100% of last year's tax (or 110% of last year's tax if you earn more than a certain figure - or if you want to be totally sure of no penalty) once a year, ie, before April 15 current year. You can pay the ES tax for the current year at the same time when you file your taxes for last year, so you don't forget. That is very simple, even for a very old person who doesn't want to think about taxes.
But before I go any farther let me tell you I NEVER figure my own taxes I always and always use a licensed certified public accountant. If there is ever an issue with the IRS I do not want to be the one to answer any questions I let my accountant do it.
Married filing jointly.
Taxable IRA distributions: $6,960
Pension Benefits: $4,400
Social Security Benefits: $55,128 (Gross before any deductions for our Plan B's)
Total Income: $66,488
The website comes up with an estimate of only $762 due on our social security income. Mind you taxes would be more as the $762 is ONLY the tax on our social security but if we add the pensions and IRA withdrawals how much would our tax really increase?
To be on the safe side my plan is to have social security automatically deduct $100/month. Do you think that would cover me?
Oh, I am still working but I plan to actually retire on my 75th birthday which is just a few months away. And yes, I will talk to my accountant prior to doing anything.
Look into using EFTPS for paying quarterly estimated taxes.
I setup a payment schedule in advance and find it is the easiest way to make payments on time.
I used the EFTPS today to send Uncle Sam some money. I don't set up a payment schedule in advance because I don't know in advance how much my gains may be. It can fluctuate considerably from year to year depending on what I do in the market that year.
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And no, I don't just go with what people tell me on the Internet.
