Some of you know the plan by now: retired, living off the rollover IRA, Social Security at 67, a couple of small Roth conversions this year on the advisor's spreadsheet. What none of us put on the spreadsheet is who actually pays the tax on all that.
I had a 35 year habit of tax just being taken out. This year it hasn't been. The IRA custodian takes 10% off my monthly withdrawal because that's apparently the default, and the conversions had nothing withheld at all because I told them not to (the advisor said pay the conversion tax from outside money, which I'm still fine with). My preparer ran a projection last week and says I'll owe somewhere around $9,000 in April, and then said the words "underpayment penalty" and "you should have been making quarterly payments."
I didn't know I was supposed to. Is the penalty a done deal at this point? Do I send the IRS a check tomorrow? Does it even help this late in the year?
Not the penalty answer, but for next year: I filed the W-4V with Social Security after my first payment came in short, and now 10% comes out of every check and I don't think about it. Won't help you until you claim at 67 of course.
Our preparer's line when this happened to my brother-in-law (different brother-in-law, I have several): the penalty is basically interest, not a fine. His was a few hundred bucks on a similar amount. Annoying, not ruinous. But I don't know the rules for avoiding it, just what it cost him.
I have dodged this for years with one trick a preparer taught me, but I'll leave it for Daniel to explain properly because I'll get the wording wrong. It involves December and the IRA, that's all I'll say.
Carolyn you can't say that and leave. Preparer is out until the end of the month so I'm stewing.
#6October 25, 2026, 9:40 am gary1957 said:
Is the penalty a done deal at this point?
Gary, it very likely isn't, and Carolyn's trick is the reason. General rules, not advice on your return; your preparer has the actual numbers.
First, the penalty is avoided rather than forgiven. You generally owe no underpayment penalty if what you paid during the year, through withholding and timely estimated payments, covers at least 90% of this year's tax, or 100% of last year's total tax. If last year's adjusted gross income was over $150,000 that second test is 110%. You still owe the balance in April either way; the safe harbor just keeps the penalty off it.
Now the trick. The IRS treats tax that is WITHHELD as if it were paid evenly across the four quarterly due dates, unless you elect to use the actual dates. An estimated payment, by contrast, only counts from the day you send it. So a check mailed tomorrow helps the fourth quarter but leaves the April, June and September shortfalls showing. Withholding taken from an IRA withdrawal in December is spread back over the whole year.
In practice that means asking your custodian for a December withdrawal with a high withholding rate on it, sized so total withholding for the year clears whichever safe harbor is lower for you. Two cautions. The withdrawal is itself taxable income, so it needs to fit the year's plan (it may simply replace January's draw). And if your first retired year follows a high-earning final year at work, last year's tax may be the harder target, so check both numbers with your preparer.
The site published a full guide on this yesterday, paying taxes in retirement, including the 2026 due dates and how to set withholding on Social Security once you claim. For the conversions, the withholding question is also covered in Roth conversions.
That's the one. December, IRA, withhold a lot. Twenty years and it has never failed me.
Preparer's back and confirmed it. Last year's tax was the easier safe harbor for me. We're taking the December IRA draw with 40% withheld on it, which covers the gap for the year, and next year the monthly withdrawal goes to 15% withholding from January. He says there should be no penalty on this year's return.
Felt like a slightly embarrassing problem for someone who's been reading this board for two years. Posting the outcome in case it saves somebody else the stewing.
