Welcome to Extreme Investor Network! Today, we are going to discuss a lesser-known year-end tax strategy that can help retirees manage their tax liabilities more effectively.
Retirees have various sources of income such as Social Security, pensions, retirement plans, and more. It is crucial for retirees to withhold taxes or make quarterly payments to avoid IRS penalties. For 2024, the quarterly estimated tax deadlines are April 15, June 17, Sept. 16, and Jan. 15, 2025.
One strategy that experts recommend is leveraging required minimum distributions (RMDs) to cover missed tax payments. RMDs are mandatory yearly withdrawals from pretax retirement savings, and they can be used to correct any tax underpayments.
Many retirees have multiple sources of income, including pension, interest, dividends, rental income, and earnings from a job. As income increases, retirees may need to adjust their tax withholdings accordingly to avoid any surprises at tax time.
One effective strategy is to cover tax liabilities for all sources of income through withholdings from annual RMDs, which usually occur closer to year-end. This allows retirees to get credit for making tax payments throughout the year, even if they only do it in December.
It is essential to track income and tax liability throughout the year to ensure that you are on track with your tax payments. By leveraging RMDs and planning ahead, retirees can avoid IRS penalties and simplify their tax planning process.
Remember, the annual deadline for RMDs is Dec. 31, and missing the withdrawal or not taking enough can result in a 25% penalty on the amount you should have withdrawn. By utilizing this strategy, retirees can take control of their tax obligations and avoid unnecessary penalties.
At Extreme Investor Network, we believe in empowering individuals with valuable financial knowledge to help them make informed decisions and achieve their financial goals. Stay tuned for more tips and strategies to optimize your personal finances and maximize your wealth-building potential.