Could One Smart Tax Move Help You Avoid a Surprise Next April?

When most people think about Required Minimum Distributions (RMDs), they focus on one thing:

Taking the money out before the deadline.

But there's another decision that's just as important...

How much tax should you withhold?

Getting that answer right may help you avoid an unpleasant surprise when it's time to file your tax return.

One Decision Can Affect Your Whole Year

Many retirees assume they need to make quarterly estimated tax payments throughout the year.

In some situations, withholding taxes from an RMD may accomplish the same goal.

That's because federal tax withholding on an RMD is generally treated as though it was paid evenly throughout the year—even if the withholding happens later in the year.

That can make withholding a useful planning tool for some retirees.

Every Situation Is Different

There's no one withholding percentage that's right for everyone.

The amount depends on several factors, including:

• Other sources of income

• Social Security benefits

• Pension income

• Investment income

• Your overall tax situation

That's why withholding deserves a little planning instead of becoming an afterthought.

A Simple Example

Let's imagine Karen realizes in November that she hasn't paid enough toward her federal taxes during the year.

Instead of scrambling to make a large estimated payment, she works with her financial advisor to review whether withholding additional taxes from her Required Minimum Distribution makes sense.

For some retirees, this approach may help simplify year-end tax planning.

Every situation is different, but understanding your options before making a decision is always a good place to start.

Four Questions to Ask Yourself

✓ Have I owed taxes in recent years?

✓ Do I receive income from several different sources?

✓ Have I reviewed how much tax I'm withholding?

✓ Have I talked with my advisor before taking my RMD?

If you answered "yes" to several of these questions, it may be time to revisit your withholding strategy before year-end.

Planning Today Can Reduce Stress Tomorrow

Tax planning doesn't have to mean complicated spreadsheets.

Sometimes it's simply taking a few minutes to ask the right questions before important deadlines arrive.

A thoughtful withholding strategy today may help make next spring a little less stressful.

Wisdom Financial is a DBA of John Boyer, Inc.  Fee‐based advisory services offered through John Boyer, Inc, a Registered Investment Advisor. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP® in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.