I’m helping my mom with her traditional IRA after her divorce. She’s 71 and we decided to take out $180,000 on 12/4/24 without withholding any state or federal taxes.
Everything I read said as long as we make the next quarterly payment by January 15, 2025, there shouldn’t be penalties. But her accountant says otherwise:
“Incorrect, taxes are due when you get the money, not in April. Just like when you had wages and paid withholding each paycheck. There will be penalties for not withholding taxes on the IRA withdrawal. These are 2210 penalties calculated when filing the return.”
Did I mess up? If so, what’s the best way to minimize any penalties?
You’re fine. The accountant probably doesn’t realize you plan to pay by the January 15 deadline. Whoever files the taxes will need to complete Form 2210 Schedule AI to show the income came in Q4, so no penalties for earlier quarters. If the accountant doesn’t know how to do this, find one who does.
@Sage
Thank you! I was so worried I messed up helping my mom for the first time. Do you know if the full payment is due by 1/15 or just part of it? Also, it’s a traditional IRA.
Zion said: @Sage
Thank you! I was so worried I messed up helping my mom for the first time. Do you know if the full payment is due by 1/15 or just part of it? Also, it’s a traditional IRA.
What was her income for Q1-Q3? Did she make any estimated payments or have withholding earlier this year?
@Sage
She had very little income, mainly $1,300 monthly from Social Security and under $10,000 in small business income. Could the lack of withholding on the IRA withdrawal be an issue with this?
Zion said: @Sage
She had very little income, mainly $1,300 monthly from Social Security and under $10,000 in small business income. Could the lack of withholding on the IRA withdrawal be an issue with this?
Without earlier withholding, there could be a small penalty for Q1-Q3 even if you pay by 1/15. Form 2210 Schedule AI will sort that out.
Zion said: @Sage
She had very little income, mainly $1,300 monthly from Social Security and under $10,000 in small business income. Could the lack of withholding on the IRA withdrawal be an issue with this?
The withdrawal bumped her income significantly. Up to 50% of her Social Security income is now taxable.
You didn’t mess up but you added more work. You’ll need to use the Annualized Income Installment Method on Form 2210 to show uneven income throughout the year.
Noor said:
You didn’t mess up but you added more work. You’ll need to use the Annualized Income Installment Method on Form 2210 to show uneven income throughout the year.
Thanks! Is the full tax due on 1/15 or just part of it? I initially thought paying by April 15 would be fine but saw something about quarterly payments.
@Zion
To avoid penalties, pay 100% of last year’s tax or 90% of this year’s tax by the deadlines. State rules may differ. For example, in California, you’re penalized if underpaid, no matter what.
Noor said: @Zion
To avoid penalties, pay 100% of last year’s tax or 90% of this year’s tax by the deadlines. State rules may differ. For example, in California, you’re penalized if underpaid, no matter what.
She’s filing as single, with about $190,000 income this year. Does this mean everything needs to be paid by 1/15?