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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.
My suggestion is to have taxes withheld on the income/pensions that you KNOW you will receive every month, and make it enough to just about break even taxwise. I'd rather owe a small amount than be waiting for a refund.
As to the irregular, infrequent, or unexpected income such as gains from the sale of stock or real estate, I wouldn't advise paying those taxes until you're sure you've got the income/profit. No need to pay a lot of taxes in advance thinking that you MIGHT have some income later in the year that never materializes.
We generally know our yearly income early in the year, and sometime before the end of the year, we make a withdrawal from an IRA and have it all, or nearly all, withheld for paying that year’s taxes.
Unless and until I do conversions and then RMDs at 75, the other income is mostly just CD interest. So it will be sort of predictable
I'm thinking of 25% withholding on the pension and SS. (Easy to calculate, easy to remember.)
If I'm only going to convert to the top of the 25% bracket, depending on how much room is left in the bracket....I'm thinking that holding back 25% on the SS and pension, should be enough that I'm not under withholding to the point of a penalty.
I'm not a big into getting a refund. But if I can find a withholding amount that keeps me out of penalty territory that's my main thing...as I think about it today.
If your income varies a lot go for quarterly.
From what you said withholding from pension and SS seems to be the way to go.
Not knowing your income 25% sounds way too much. Maybe take last years taxes and add 5 to 10% and then have that amount withheld.
Also for regular bills you might be able to use a bill pay system to send a monthly check for x dollars.
Some vendors will take the money from your checking account.
For my occasional IRA withdrawals, I gross up the amount and have Schwab withhold 24%. Putting it simply, If I need $10,000 to pay for a vacation trip, I calculate the gross amount as 10,000/.76 = 13,157, then Schwab withholds 3,157.
That keeps things simple and ensures I don't have quarterly issues or any penalties for not paying estimated tax on time. And, don't have to prepare a coupon to mail to the IRS.
My husband is retired from NPS - he became a realtor once retired. He found that investing in property is better than just helping people buy and sell. With 8 mortgages and expenses the way we have dealt with taxes is: Just put the refund each year towards next year's taxes. We haven't had a refund in almost 10 years, we have not paid Quarterly taxes. We just tell IRS to keep the refund for next year.
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