Do you have taxes withheld from SS and/or investments?

HoneyNut

HoneyNut

Senior Member
I've got 5 months left until I retire (if I can hold out that long) and I want to get Social Security started a couple months before I retire (I had thought it would plump up my bank account a little, but now that I'm looking at SS info it sounds like if I have SS to start in January I won't get any money until mid February so there will be very little plumping).
From what I've read there will be an option to have taxes withheld from the Social Security payment. And I am pretty sure that I might have a tax-withholding option when I get money out of my 401K (but I'm not sure, maybe I should schedule a meeting with a Fidelity advisor to find out how to set up getting money).
But when I was going through my mom's stuff after she died, it looked like she paid quarterly estimated payments.

Also, I live in a state that taxes social security and retirement income. I have no idea how to pay state taxes either. I've always counted on taxes being withheld from my paycheck. This is new to me. What do you do?
 

I use Turbotax to do my taxes. There is a tax estimator function in the software for both federal and state taxes. I pay estimated taxes because I cannot predict how much income I will receive from a mutual fund as it is reinvested.
Now for the good news: There is a thing called "Safe harbor", so if you pay the state and federal quarterly estimated tax based on what your 2020 income tax was, you are in good shape.
For example, if you owed $4000 to the feds, you make quarterly payments of $1000, due the 15th of April, June, September, and the following January.
The IRS has a thing called EFTPS, where you can set up an account to have them withdraw the estimated taxes quarterly from your bank account. I would guess your state has a similar program.
At the end of 2021, do your taxes and use that as a guide to pay estimated taxes in 2022.
If you need more detail, just ask me.
 
I have Federal and State income tax automatically held out of SS, company pension, and the IRA, every month. I have slightly more held out than what I actually need to pay, so every year in Feb/March, when I file the taxes, I get a modest refund. That makes a minimal "hassle" out of doing the taxes. Our taxes are pretty simple....standard deduction, etc., so I generally only spend an hour or two, using H&R Block software, doing the taxes, and a couple of weeks later, the refunds arrive.
 

Not knowing how much income you will be bringing in I would suggest not paying income tax for now. If you make below a certain ammount of income you do not have to pay taxes or file tax returns. After a year or so you can change the amount to be taken out for taxes if you end up owing to much for taxes. I would check with the finacial advisor because I am known to play the system. If you pull money from your retirement fund and it is taxed you might be able to get that taxed money back if you still make below the taxable income limit. I also use H&R block for my taxes and they have done me good. They are the ones that say I know how to play the system.
 
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I don’t have taxes withheld from my SS payments but I do have my Medicare Advantage premiums deducted.

In those years when I take a distribution from my IRA I have a percentage of the withdrawal withheld for taxes.

Most years I pay very little in federal taxes and am not required to pay quarterly payments.

There is no right or wrong answer. It really depends on you and your personal situation.
 
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For the first year or two, I had taxes withheld form my social security, then I stopped. Thankfully, N.J. does not tax SS or our pensions. Most of my investments are in a tax free Roth account. Another part is in a traditional IRA but because my RMDs are sent directly from the brokerage to St. Jude, they are not not taxed either. I don't take distributions from the remainder of my investments but pay a small amount of tax (at tax time) on their dividends and capital gains. I use H & R Block Tax Cut (for Fed and state) and by answering the questionnaires in each section, they figure out the taxes for me. Due to the pension exclusion and non taxable SS, I haven't paid state taxes in years.
 
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Hold 10% Fed out of my SS (not taxed in my state). Our pension is setup like a W-4 with both Fed & State withheld. I estimate/deposit, pay in full all my annual payments with 2% back card (home/auto ins, memberships/fees/ambulance,,,etc) when due saving hidden fees. Split the rest.
 


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