One December Move Erases a Year of Missed Estimated Taxes: The IRS Treats RMD Withholding as Paid On Time, All Year Long.

The last few weeks of December present a specific tax opportunity for retirees who have fallen behind on quarterly estimated tax payments. Federal income tax withheld from a retirement account distribution is treated by the IRS as having been paid evenly across all four quarters, no matter when in the year the withholding actually happened. That single quirk turns a December required minimum distribution into a tool for erasing an entire year of missed estimated taxes without triggering an underpayment penalty.

More than it has in years, this strategy matters in the current environment. The 10-year Treasury yield sits at 4.70%, near the top of its range, with a trailing-year percentile rank of 98. Higher yields mean IRS underpayment interest is higher too, so the cost of missing the safe harbor has gone up. At the same time, the personal savings rate has fallen from 6.2% in the first quarter of 2024 to 2.8% in the second quarter of 2026, leaving thinner buffers to absorb a surprise April tax bill.

How the Withholding Rule Works

Estimated tax payments get credited on the date they are actually made. A retiree who skips the April, June, and September quarterly deadlines and then writes one big check in January will owe an underpayment penalty, even if the total amount ends up correct. Withholding follows a different set of rules. Federal tax withheld from wages, pensions, Social Security, or an IRA distribution is treated as if it were paid ratably across the entire year. A December withholding of $10,000 counts the same as $2,500 paid in each quarter.

That mechanic is what makes the RMD strategy work. A retiree who is required to take a distribution before year-end can direct the custodian to withhold whatever amount is needed to cover the full tax liability, not just the tax on the distribution itself. The remaining RMD balance is then deposited into the retiree’s checking or taxable brokerage account.

The Safe Harbor Numbers That Matter

The IRS will not assess an underpayment penalty if withholding and timely estimated payments together meet one of three thresholds:

1. At least 90% of the current year’s total tax liability.
2. At least 100% of the prior year’s total tax liability.
3. At least 110% of the prior year’s tax liability if adjusted gross income on the prior return exceeded $150,000.

The prior-year figure is the easier target for most retirees because it is already known. Pull last year’s Form 1040, find the total tax line, and that is the withholding target for this year. Whatever cannot be covered by Social Security withholding, pension withholding, or estimated payments already made can be covered by withholding for December RMDs.

Sizing the RMD and the Withholding

Under SECURE 2.0, the RMD starting age is 73 for account owners born between 1951 and 1959, and 75 for those born in 1960 or later. A common calculation illustrates the scale. A traditional IRA balance of $500,000 at the end of the prior year, divided by a distribution period of 25.5 for a 73-year-old under the Uniform Lifetime Table, produces an RMD of roughly $19,608. A retiree can request withholding of any share of that distribution, up to 100%, using Form W-4R.

The penalty for skipping the RMD altogether is 25% of the amount that should have been distributed, which is reduced to 10% if corrected within a two-year window. That penalty is separate from the estimated tax underpayment penalty that the withholding strategy is designed to cure.

What to Watch This December

Social Security is the other lever. The 2027 cost-of-living adjustment is tracking toward 3.1%, and total Social Security receipts across the household sector reached $1,646.7 billion in the second quarter of 2026. Retirees who have not elected voluntary federal withholding on Social Security using Form W-4V often carry a larger estimated tax burden than they realize, which is one reason the December RMD move exists as a backstop.

Custodians typically need one to three weeks to process a large distribution with custom withholding, so the practical deadline for the December move is mid-month rather than December 31. Requests submitted between Christmas and New Year’s Eve often miss the tax year. The mechanic is straightforward, but it depends on timing that has to be built into the calendar before the last week of the year arrives.

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