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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.