First year of retirement questions

I am looking for some pointers on dealing with various questions regarding federal and state tax calculation and payments.

Background: I retired the last week of May 2022. So I do have W-2 income and withholding for the first 5 months of the year.
I have been living on my aftertax savings since my last paycheck.
I am 67 years old (past Social Security FRA) but I am NOT collecting Social Security yet.
I live in Connecticut (which has a state income tax).
My after-tax funds will NOT last forever so I will be tapping some of my pre-tax accounts for expenses within 6 to 12 months.
I AM doing some pre-tax money transfers to convert pre-tax to ROTH. This creates taxes due.
I do receive dividends and interest which creates taxes due.

I am not concerned about taxes on the first 5 months of income because I have always had sufficient withholding. But now I am trying to calculate where I stand on this current quarter.

Are there any recommendations on estimated tax calculators that people have successfully used? I am a Turbo Tax user and have tried to enter in my partial information to see what my current liabilities are but I would like a ‘reality check’ by using a second technique while I am trying to find my way through this new life of a retiree.

And after I’ve determined what I need to pay for this third quarter, what are the best ways to remit taxes to the government(s)? Are some methods preferable or have advantages over others?

Any information would be very appreciated.

Thanks,

Wayne

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If you are paying any IRMAA for Medicare, you can request a recalculation based on the decreased income because of the end of earned income.

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Welcome to the club, I had the same situation 2 years ago.
Look at your 2021 tax returns or notes. If your salary didn’t change much year to year. The compare 2021 to the paystubs year to date from May. The difference in total salary and taxable income should let you know how much you might withdraw from tax deferred to keep things close year to year.
Sign up for Medicare if you need to if health plan stopped with your job.

As for paying IRS I use my online IRS.Gov account to pay ES taxes. Open an account if you don’t have one. They also link to sites where you can setup quarterly payments in advance.
Social Security is something you should research to decide what is best for You and Family.
Marital Status, work and pay history for each and ages make the choices a bit complicated.

Ask more questions as you go along and suggestions will come.

Fool Services offers a retirement planning service which you may want to look at getting for the first year or so.

Mike

The retirement planning service is called, Rule Your Retirement. They have some of the tax stuff you find on this tax board and they also have info on how much to withdraw to make your money last, Roth conversion ideas, and ideas on when to collect SS.

Mike

My after-tax funds will NOT last forever so I will be tapping some of my pre-tax accounts for expenses within 6 to 12 months.

Withholding by default is considered evenly contributed through the quarters. Estimated taxes are on the date sent.

When you are tapping pre-tax accounts for expenses, using the distributions for your income taxes is a consideration. Most administrators allow around 98% of the distribution to be withheld for a combination of federal and state taxes.

https://www.irs.gov/individuals/tax-withholding-estimator

The IRS site has a tax estimator. As long as income isn’t business related, it can work as a second opinion.

What is often unpredictable are end of year distributions from investments. Mutual Funds are the major investments that have large end of year distributions but ETFs can also have unexpectedly large distributions.

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Given there are only 4 months left in this year, not collecting Social Security this year may be a good choice. It probably would be partially taxable based on your earned income from the first part of this year and other income. Depending on investment income, your Social Security maybe taxable anyway.

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Based on many historical responses here, many people use EFTPS to pay their estimated taxes. It’s a clean, simple website; very easy to use. And you can set up payments in advance. Highly recommended.

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Directpay.irs.gov also works well. You don’t have to create an acount to use it, but you can’t schedule periodic payments.

Ira

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And after I’ve determined what I need to pay for this third quarter, what are the best ways to remit taxes to the government(s)? Are some methods preferable or have advantages over others?

If you are going to be withdrawing money from your pre-tax accounts to pay the taxes anyway, then you can have taxes withheld from a distribution, and it will be counted as withholding. An easy way to avoid penalties is to ensure that your total withholding (from your job and your pre-tax accounts) is at least as much as you paid in taxes last year (110% of what you paid last year if your AGI is over $150k).

AJ

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Thank you for all the replies. Some comments:

I’m not worried about collecting SS at the moment. I am thinking of trying to hold off until I am 70 years old.
It looks like paying the Federal amounts is easy. There are various techniques available.
My bigger thought is to keep a watch on my current years income and attempt to convert funds from my TIRA to ROTH to the largest extent possible.
Based on this wish, watching my current year income items is important. I have a running spreadsheet showing all of my W2 income, interest, dividends, TIRA to ROTH conversion amounts, TIRA withdrawals, etc.

Chasing down some Google searches, I’ve found a Tax Calculator on the AARP site that seems to address my immediate needs. I can simply enter dollar amounts into various buckets (interest, dividends, taxable distributions, etc) and get a 2022 taxable income calculation. Has anyone used the AARP calculator? And / or has anyone found something online that allows the same kind of calculations in a reliable fashion?

And, is there any documentation available that details the timings of when quarterly payments are due if I go that route vs making TIRA withdrawals to get my payments made?

Thank you.

Wayne

Wayne

The IRS site will give you the dates if you need a reference.

Q1 is due April 15 or tax day
Q2 is due June 15
Q3 is due Sept 15
Q4 is due Jan 15 of the following year.

Some states want quarterly also Not sure about CT.

Mike

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And after I’ve determined what I need to pay for this third quarter, what are the best ways to remit taxes to the government(s)? Are some methods preferable or have advantages over others?

I have a spreadsheet where I track the things that will be subject to state and federal taxes, and how much I have withheld. I have a set amount of federal tax withheld from my pension (but they don’t do state). When I make a withdrawal from my IRA, I decide then how much I want withheld for taxes, both federal and state. The spreadsheet lets me know how much to make those so that I’ll get a small refund on both fed and state taxes. This allows me to account for Roth conversions made–taxable event, but I don’t have anything withheld at that time. It also lets me account for contributing to my HSA (so there’s a tax deduction).

I started that spreadsheet while I was still working because I wanted to see how future money would affect my tax bracket–working for pay gets taxed at the marginal rates we all know about, plus Social Security and Medicare tax. It also let me see how I could maintain income but lower the taxes by mixing Roth withdrawals with taxable IRA, plus make my Social Security (some day) taxed at a mix of 0% and 50% vs. 50% and 85%, but that equation has a lot of “IF” statements in the Provisional Income line.

So far, it’s never been off by more than $100.

what are the best ways to remit taxes to the government(s)?

My RMD is made monthly and placed in our joint account. 20% is deducted for taxes and it’s a done deal. During tax filing season I get a refund. While some might say I shouldn’t let Uncle have all my money I say hey I’m comfortable that Uncle ain’t coming after me for not paying my taxes.

Regards,

ImAGolfer

My RMD is made monthly and placed in our joint account. 20% is deducted for taxes and it’s a done deal.

That might be a good strategy in 5 years, but for now, the OP is only 67 and isn’t subject to RMDs.

AJ

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