FREE NEWSLETTER
Go to main Forum page »
Here is how we use Social Security benefits voluntary withholding to pay all of our estimated Federal tax obligation. This eliminates the need for quarterly filings and payments and is as painless as when taxes were withheld from our employee paychecks. And since most of our income as well as expenses are on a monthly cycle (including a monthly RMD withdrawal moved to our brokerage account) the monthly automatic tax payment keeps everything in balance and on budget.
At the start of the tax year, I estimate what our income will be, adding Social Security benefits, RMD amount, unearned income, Roth conversion, and subtracting the planned QCD’s. We do not tax withhold any of the RMD. We have no earned income. Most of the unearned income is interest. We typically have very little in capital gains since most trading is within IRAs.
Playing around with an online tax estimator that applies the standard married filing jointly both over 65 exemptions, and knows that only 85% of our benefits are taxed, determines the maximum income that keeps us just below the next tax higher bracket. Any significant gap between our taxable income and the calculated maximum determines what if any Roth conversion we will do. All this factors into our withholding estimate which divided by 12 becomes our monthly amount.
The only tricky part is that the voluntary withholding percentages can only be set to whatever the current tax brackets are: 7%, 10%, 12%, or 22%, except that percentages that were set to previous tax brackets remain in effect. So far, by adjusting the withholding percentages for our two Social Security benefits (one much larger than the other) we have been able to “dial-in” our withholding to be close to what is needed.
For 2025 12% of my Social Security benefit was withheld and 7% of my spouses benefit was withheld. Our effective tax rate is about 7.4%. With a small Roth conversion, our federal taxable income was just below the $96,950 MFJ threshold keeping us in the 12% bracket.
It would be much better if the system allowed the withholding to be set to any percentage. And, a recent change to the Social Security online system now allows adjusting the voluntary withholding while logged into the account. If necessary to end up correctly withheld, a mid-year change could be made, allowing for the two month delay between when the change is requested and when it is implemented.
Needless to say is that if taxes on Social Security benefits were ever actually eliminated this would almost certainly also eliminate this method of paying withholding.
The state income tax does need to be separately withheld but our state is very retirement income friendly, not taxing Social Security benefits, and starting in 2026 not taxing retirement account withdrawals at all. Our state tax obligation is only a few hundred dollars.
Anyone else using Social Security benefits voluntary withholding? How many file quarterly estimates? Have taxes withheld from RMDs? Over withhold, just to be sure? Send in lump sums for large tax events? Recalculate taxes several times during a year and make withholding adjustments?
I just pay 110% of last year quarterly from after tax accounts. When I hit 73 in 3-4 years Ill probably pay a couple of quarters then use the RMD at year end for the last couple. Then when my wife hits 73, we’ll see if both RMDs do the job.
I don’t have any federal taxes withheld from our pensions. I pay all my federal income tax once a year when I make a withdrawal from our retirement accounts. I adjust the withdrawal so that I can fill up my current tax bracket and adjust the withholding so that I pay just over the previous year’s tax liability (safe harbor). I generally owe a bit when taxes are due and I’m fine with that.
I have to admit that I never understood the advantage of “taxes withheld from RMDs are considered paid evenly throughout the year, even if paid near the end of the year” thing until I dug into it after reading some of the comments. This is an option we will keep in mind.
Here is my summary on the withholding in retirement issue:
Taking all of the withholding from one income source helps keep it as simple as possible.
Social Security benefit voluntary withholding or RMD withholding are the likely candidates for the single income sources. Each has their advantages. Social Security voluntary withholding can start as soon your first benefit payment. RMD withholding can be used after RMDs start but does have the advantage stated above. Those with large enough pensions could use that.
Avoiding risk and hassle (even if only minor) of quarterly reports and payments appears to be a consensus. But for some these may be a necessity.
Automating the withholding helps, having whoever is providing the income take out the withholding as the income is received.
Do an income and tax estimate near the start of a year and set the automatic withholding amounts/percentages at that time.
Be prepared to make some adjustment toward the end of the year or when some other taxable event or change occurs.
As for us, I will do our income and tax estimate as soon as the 2026 figures firm up. But I anticipate little if any change will be needed and our current Social Security benefit voluntary withholding will continue with no need for any action on our part.
“As for us, I will do our income and tax estimate as soon as the 2026 figures firm up.”
Bogdan recently posted the IRS 2026 inflation adjustments (see below)
https://humbledollar.com/forum/2026-irs-inflation-adjustments/
I have two inherited IRAs, a regular one and a Roth. I take the required distributions every year, and withhold the entire amount for taxes. I also withhold 22% from my SS, and I usually have a carryforward at the IRS from the prior year. If necessary, I will take slightly more than the required distribution.
Starting in 2026, I will have to take RMDs from my own IRA. I plan on withholding 40% for Federal tax and 10% for state tax. I may still have to withhold some percentage of my inherited IRAs.
PS. I usually take the distributions in December, so I can earn interest on the money all year.
Fellow HDers, whatever method you are comfortable using is great. All of the methods discussed below require the same basic calculations, except one. I’ll get to that later.
Here’s my advice for everyone. Don’t pay extra because you want a huge refund. The reason is not because you are giving the government a tax free loan; I couldn’t care less about that. The reason is because the IRS pulls random tax returns out of E-file for manual processing. I have had clients wait as long as two years to get their refunds.
Now for that one exception. The award for keeping it simple goes to Howard. To calculate his estimates, Howard simply multiplies current year taxes by 110%; can’t get much more simple than that, and even if his income should vary in the coming year, he will have paid in enough to escape an under payment penalty.
Maybe I’m missing something but I don’t see the attraction of making quarterly payments if the option to use some type of withholding exists (pay, pension, SS, and/or RMD). Unlike withheld tax payments, quarterly payments require one to match income to taxes incurred and, thus, opens the potential to incurring an underpayment penalty and/or interest.
I “choose” what my minimum income for the year will be at the beginning of the year based on needs and tax planning goals. My total income is my annuitized income streams plus potentially some self employment and mini Roth conversions which I use to hit my income goal. I then figure out the yearly tax on that income target and have 1/12 withheld from my pension each month. Nothing is withheld from the other sources (a small pension and SS) because its just easier to deal w one source of withholding.
If, at some point during the year, due to unexpected income I see that I’m going to exceed my income goal and incur additional taxes, i just log on to my pension website and make an upward adjustment in withholding as needed. And I never have to worry about timing of tax payments on the Roth conversions or self employment income because it’s all through withholding and not quarterly payments.
I didn’t know you could withhold taxes from your SS benefits. I learned something new. I make quarterly estimated payments.
Most of my accounts are with Fidelity. After filling out some paperwork, they automatically send 70% of my RMD to the Federal Government for taxes on December 20th each year.
Schwab allows any even % to be withheld from RMD withdrawals. And, since we are just reinvesting these dollars in our taxable account, it is very easy to have your entire tax liability paid with two transactions ( 2 IRAs). Of course, you need a fairly accurate estimate of your tax liability. I do this via the “What-If” feature of TurboTax download version.
As far as the IRS is concerned quarterly estimates are 2nd class citizens. While, withholding payments can be made in December, estimates must be paid exactly on the IRS schedule.
Completely agree with using this approach. Both Vanguard and Fidelity also allow even-number percentage withholdings for federal tax. The withholding shows up on the 1099-R. Both entities will also withhold for some states as well.
In January, I set the RMD tax withholding amount to be close to the previous year’s tax liability. That keeps Vanguard from dunning me all year about it. Then I watch my current year tax liability as it varies through the year. In December, when I have a pretty good idea what my tax due will be, I’ll adjust the RMD tax withholding percentage and date of withholding as need.
Tax “withholding” is deemed to have been done uniformly throughout the year, obviating the need to do quarterly filings.
Easy Peasy…
Why not have most, if not all, of the tax liability taken from the much smaller Social Security checks?
For the past several years we have had an amount equal to 1/4 of or yearly tax liability taken from one of or inherited accounts as we have not claimed Social Security yet. The amount vastly exceeds what is the RMD (which is based on my age) for that account as my parents died before the change in taxes.
After those funds are depleted at the end of next year I will have my entire pension go 100% towards taxes which will cover 75% of our tax liability. Have not sat down yet to consider where the balance would be withheld.
“Why not have most, if not all, of the tax liability taken from the much smaller Social Security checks?”
Two reasons. By taking a smaller percentage from the smaller benefit the “chunks” are smaller allowing for a better approximation of the correct withholding amount. And most importantly, since the smaller benefit is my spouses’ benefit I do not need to answer questions about why so little is left over, even though everything goes into one shared pile.
I don’t have any withholding taken out of any payments. I just pay 110% of the prior year tax and file quarterly which takes five minutes. This has worked well for many years and is pretty simple.
Very simple and safe. Does this tend to result in a growing amount of refund each year?
I use this method because it guarantees that I won’t have to pay an under withholding penalty and it is simple. The refunds vary year to year but have never been excessive, usually a couple thousand dollars and sometimes I owe a little money. Filing the estimated tax on the IRS web site really only takes a few minutes.
Great idea, Howard
What’s the secret taking five minutes? Can you do it all online.
Yes. It’s less than 5 minutes.
Not only can you pay online, you can also automate it—set up quarterly payments for the whole year in one transaction. I do that every year; I also set up automatic transfers from savings to checking a day or two before the payment date.
Very easy to make a direct payment online.
This is our first year on SS and we are having taxes withheld. We are also having taxes taken from IRA but not pensions, b/c they are small amounts. We will adjust after taxes next year. Agree that we didn’t want the hassle of paying estimated taxes quarterly. Chris
We withhold from SS and we withhold from annual RMD sufficient to cover the taxes on investment dividends, interest and capital gains outside the IRA. Withholding from pension as well.
your post got me thinking. I may increase withhold percentage from SS to make it easier
We’re overwithheld in both Social Security and pensions.
Yeah … we know it’s free loans to the Federal and State governments.
But we’re retired and it is a lot simpler (to us) than filing quarterly estimates.
Most of our finances are on auto-pilot. And our FIT/SIT are too.
Totally agree.
I have used a variety of methods. We have federal tax withheld from my pension and my wife’s SS benefits. When I was actively consulting I kept track of income throughout the year and make quarterly federal and state estimated payments. In the last few years we have purchased 2 homes and sold 1. We have taken some IRA withdrawals. I have federal and state taxes withheld. At the end of the year I have done a fine estimated tax, but more recently I found it better to make a withdrawal equal to my projected tax shortfall, and have it all withheld. This avoids the concern of late estimated taxes. Now that our housing situation has stabilized, we just have taxes withheld. I still keep track throughout the year via the spreadsheet I created when I started my solo LLC.
I don’t have anything withheld from my SS, I do have tax withheld from my pension. I take my RMD in October, and I have enough tax withheld to avoid a penalty for underpayment. I am about to take this year’s RMD, and have already calculated the withholding.
Paying estimated taxes each quarter sounds like a drag. I adjust tax withholding from my pension and my monthly 401(k) withdrawals so that my tax bill as calculated by spreadsheet (yes, Dick) very closely matches the aggregate withholdings. My target is to owe a few hundred each April and typically achieve that.
Good post. I set up withholdings for many of my tax clients through Social Security. I would also fill out a W4P for them to mail into their pension admin. Either method was more simple than giving them instructions to do it themselves. It can be very confusing for many people to do on their own.
For us, I just set up quarterly estimates through the IRS, and arrange for automatic withdrawals from checking. With the new senior deduction, I just went online and canceled the last two estimates.
Then there are the people who insist on mailing in the estimates. That would be my least preferred method.
At the end of the day, any way that you are comfortable with is fine, and don’t sweat the limited flexibility with the SS withholding percentages; like horseshoes and hand grenades, close is good enough.
For my long-retired mother, quarterly estimates work fine.
“Then there are the people who insist on mailing in the estimates. That would be my least preferred method.”
Complete agreement from a fellow retired tax preparer. One of the last things anyone should want is another needless argument.
Withholding tends to be inflexible when both your income and tax rules are subject to change.
I like safe harbors based on prior year tax for most situations.
We make quarterly federal and state estimated tax payments. Our circumstances are different from yours, but I like your approach.