The RMD Withholding Move a 74-Year-Old Used to Erase Four Quarterly Tax Payments

Consider a retiree we’ll call Margaret, age 74, who spent years marking her calendar for April, June, September, and January estimated tax deadlines. Her income is predictable in shape but not in timing: Social Security, a pension, dividends in a taxable brokerage account, and a required minimum distribution from a traditional IRA. Every quarter she wrote a check to the IRS. Some years the math came out right and she still owed a small underpayment penalty because one quarter had been light. Last year she stopped writing those checks entirely, and the IRS was fine with it.

She is not a real person, but the move is real, legal, and widely used by retirees who have finally done the math on it. It hinges on a quirk in how the IRS treats withholding from retirement account distributions compared with estimated payments.

Why Quarterly Estimates Create Problems Even When the Total Is Right

Estimated tax payments are credited on the date you pay them. Miss a quarter, or pay less in one quarter than the IRS safe harbor requires, and you can owe an underpayment penalty on Form 2210 even if your full-year total lands exactly right. The penalty rate equals the federal short-term rate plus three percentage points, compounded daily. For both Q3 and Q4 2026, that rate works out to 7%, confirmed by IRS Revenue Ruling 2026-15. A shortfall sitting unpaid for most of the year adds up faster than most retirees expect.

For retirees whose income is lumpy, think a big capital gain in Q3, a Roth conversion in Q4, or an RMD taken late in the year, the quarterly system is a trap. You often don’t know your real tax liability until December. It is one of several IRS rules that quietly drain retirement accounts, and we mapped the rest in a free tax trap guide for retirees.

A Withholding Rule That Changes the Math

Federal income tax withheld from a retirement account distribution is treated as if it were paid evenly throughout the tax year, regardless of when the withholding actually occurred. Estimated payments are credited when paid. Withholding is credited ratably across all four quarters. Those two sentences capture the entire strategic difference.

A retiree taking a required minimum distribution in December can direct a large share of that distribution to federal withholding, and the IRS treats it as though one-quarter of that tax was paid in each of the four quarters. One transaction, four deadlines covered.

How the Move Works in Practice

Late in the year, once income is largely known, the retiree calculates the expected full-year federal tax liability. When requesting the RMD from the IRA custodian, the retiree specifies a federal withholding percentage large enough to cover that liability. The custodian sends the withheld portion directly to the IRS and delivers the remainder to the retiree.

Timing matters here in a practical way. Taking the RMD in November or December means having a complete picture of the year’s dividends, pension income, Social Security, and capital gains before committing to a withholding amount. Since RMDs must be taken by December 31, waiting until late in the year satisfies both the rule and the strategy at once.

A few baseline facts are worth keeping in mind. Under the SECURE 2.0 Act, RMDs generally must begin at age 73 for those born between 1951 and 1959, and at age 75 for those born in 1960 or later. RMDs apply to traditional IRAs and employer plans such as 401(k) and 403(b) accounts. Missing an RMD can trigger a 25% excise tax, reduced to 10% if corrected within two years. The distribution itself is taxed as ordinary income.

Caveats Worth Stating Plainly

1. You receive less cash. Withholding comes out of the distribution before it reaches your bank account. If you were counting on the full RMD for living expenses, size the withholding accordingly and plan the cash flow in advance.
2. You have to estimate correctly. The move only works if the withheld amount covers the safe harbor: generally 100% of last year’s tax, or 110% for those whose prior-year adjusted gross income exceeded $150,000 (or $75,000 if married filing separately), or 90% of the current year’s tax. Undershoot and you’re back to a penalty.
3. State taxes are a separate question. Withholding rules vary by state, and some states don’t allow withholding from IRA distributions at all. Check before assuming the same approach applies at the state level.
4. Prior estimated payments still count. If you already sent Q1 and Q2 checks before switching strategies, factor those amounts in so you don’t over-withhold and unnecessarily shrink the distribution you receive.
5. The distribution must be large enough. If your RMD is small relative to your tax bill, you may need to combine RMD withholding with a modest year-end estimated payment to close the gap.

Who This Strategy Does Not Reach

Anyone below the RMD starting age cannot use this specific version of the move. Retirees whose savings sit entirely in Roth IRAs face no RMDs during the owner’s lifetime and have no taxable distributions to withhold from. The same now applies to Roth 401(k) and Roth 403(b) accounts. SECURE 2.0 eliminated lifetime RMDs for those plans starting in 2024, so account owners who converted to Roth workplace accounts also lose access to this tool.

It is worth noting that the strategy remains fully intact for the large population of retirees still holding traditional IRA or pre-tax 401(k) balances. Those accounts continue to generate RMDs, and the ratable withholding rule applies to every one of them.

What to Do First

Pull last year’s Form 1040 and Form 2210 if you filed one. If you paid an underpayment penalty last year, or if quarterly estimates are a consistent source of anxiety, this move deserves a serious look before your next RMD. Ask your IRA custodian what withholding percentages they allow and how late in December they can process a distribution with custom withholding. The IRS.gov pages on estimated taxes and underpayment of estimated tax spell out the safe harbors in full. The ratable-treatment rule for withholding appears in the Form 2210 instructions.

The withholding rules have worked this way for a long time. Using them deliberately is the whole point.

Editor’s note: This article has been updated to confirm the IRS underpayment penalty rate is 7% for both Q3 and Q4 2026 (per Rev. Rul. 2026-15), and to add the specific prior-year AGI threshold of $150,000 that triggers the 110% safe harbor calculation.

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