Avoid IRS Penalties in Retirement

As tax season approaches, retirees are reminded of their obligations to withhold taxes or make quarterly payments to avoid penalties from the IRS. For 2024, the deadlines for estimated tax payments are set for April 15, June 17, September 16, and January 15, 2025. Many retirees receive income from various sources, including Social Security, pensions, and retirement plans, necessitating careful tax planning. Experts suggest that retirees can correct any missed tax payments by utilizing withholdings from their required minimum distributions (RMDs). These withholdings are considered on-time payments, even if they are used to cover taxes owed from previous quarters. This strategy allows retirees to manage their tax liabilities effectively, particularly if they realize they have not withheld enough from their income throughout the year. Financial advisors emphasize that as retirees' income increases, they may need to adjust their tax withholdings accordingly. While taxes are typically due by quarterly deadlines, using RMDs can provide a solution for those who may have underpaid earlier in the year. Matthew Saneholtz, a certified financial planner, notes that retirees can receive credit for tax payments made through RMDs, even if those payments occur later in the year. Additionally, retirees should be aware that the deadline for their first RMD is extended to April 1 following the year they turn 73, providing further flexibility in managing their tax obligations.