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Old 09-14-2015, 11:44 AM
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Amount of Withholding Required to Avoid Penalty

Both my wife and I are older than 70-1/2 years, so minimum required distributions ("MRD") from our 401ks began a couple years ago. We file married, joint returns.

We decided to purchase a second home in Arizona where winters are milder than where our primary residence is located. We took a distribution from our combined 401k whose amount exceeds the MDR to pay cash for the home in Arizona. We did not have any withholding taken to pay income taxes at that time.

I now plan to take an additional distribution to pay federal and state income taxes in order to avoid owing penalties and interest on our 2015 returns. Documentation I have found on the internet has left me confused about the amount/percentage of adjusted gross income I am required to pay the IRS.

One set of instructions (IRS 2015 Form 1040-ES) would seem to indicate I can get by paying the "Required annual payment based on prior year's tax" while a different article would seem to indicate I can get by with 10% FIT withholding and 5% for state.

I remain, slightly confused. Help will be appreciated.



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Old 09-14-2015, 03:27 PM
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We decided to purchase a second home in Arizona where winters are milder than where our primary residence is located. We took a distribution from our combined 401k whose amount exceeds the MDR to pay cash for the home in Arizona. We did not have any withholding taken to pay income taxes at that time.=========>> Retirees can always withdraw more than the RMD; After age 59½, you can withdraw as much money as you want from tax-deferred accounts without penalty.but Taxes are due on the withdrawn amount, so, you may withdraw more than the RMD aslongas you have defined contribution plan , 401K plan;for example, an IRA owner can always withdraw more than the RMD. You cannot apply excess withdrawals toward future years’ RMDs. The requirement begins the year you reaches age 70.5. The RMD
can be taken any time during the year but no later than Dec. 31. For the year in which you turn 70.5, the deadline is extended until April 1 of the following
year. So you can take more than the RMD, but the extra can’t be applied to next year. In other words, if the RMD is $2k for this year and the you takes $3.5K, the extra $1.5K cannot be credited toward next year’s RMD. However, a large distribution in one year reduces the amount of assets growing in the
account, so the calculated RMD the following year may be less because the account value is less.



I now plan to take an additional distribution to pay federal and state income taxes in order to avoid owing penalties and interest on our 2015 returns. Documentation I have found on the internet has left me confused about the amount/percentage of adjusted gross income I am required to pay the IRS.======>>>As you can see, Traditional 401k contributions usually are not recorded on income tax returns.I mean Contributions to traditional, NOT ROTH 401K, 401(k) plans reduce your agi, so, they typically not reported as taxable income on your income tax return;however, a section 401(k) distribution is included in your
AGI, as part of your provisional income, when determining the taxable amount of your social security benefits from SSA if you also receive it.so, when you take an RMD, you need to pay taxes on the distribution as you would any other distribution from the retirement account. RMDs are not eligible to be rolled over into another retirement account, so you will pay taxes on them in the year you take them.



One set of instructions (IRS 2015 Form 1040-ES) would seem to indicate I can get by paying the "Required annual payment based on prior year's tax" while a different article would seem to indicate I can get by with 10% FIT withholding and 5% for state.======>>> withdrawals made after you reach the age of 59 1/2, or when you become disabled or if you are the pay-on-death beneficiary on a 401(k) are classified as qualified withdrawals. Most other types of withdrawals are nonqualified and subject to a 10% federal tax penalty in addition to regular income tax to IRS/state. You are taxed at your income tax rate on the amount of the withdrawn RMD. However, to the extent the RMD is a return of basis.



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Old 09-14-2015, 03:58 PM
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Join Date: Sep 2015
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Thank you for your reply, and the information imparted by you. I was aware of most of what you had posted, but remain in the dark about the amount I need to pay to the IRS this year to avoid owing penalty/interest for under-withholding.

I have determined my 2015 taxable income with some degree of confidence, however, I believe if I don't cause withheld taxes to be sent to the IRS, I will owe penalties on my return.

Will I need to deposit 90% of my estimated tax liability in order to avoid the penalty? Or, will some lesser amount be OK?



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