Skip Every Quarterly Estimated Payment and Have Schwab Withhold 100% of Your December RMD Instead. The IRS Counts Withholding as Paid on Time All Year

Here is a piece of tax code most retirees never hear about: federal income tax withheld from an IRA distribution counts as if you paid it evenly across all four quarters, even if the money leaves your account on December 30.

That single rule lets you skip the April, June, September, and January estimated-payment ritual. You let your RMD sit in the market all year, then withhold enough from the December check to cover your whole federal tax bill. The IRS treats it as timely. No underpayment penalty.

Fidelity, Vanguard, Charles Schwab (NYSE:SCHW | SCHW Price Prediction), and every other custodian will do the same withholding on request, because the rule lives in the Internal Revenue Code. Schwab makes the election easy inside the RMD tool, and one advisor on the Clark Howard podcast noted that Schwab will auto-recalculate the RMD each year and adjust monthly distributions accordingly. The withholding trick works the same at any custodian.

Why December Withholding Beats Four Quarterly Checks

Estimated payments are dated. If you owe $18,000 in 2026 and send $4,500 in April, June, September, and January, each check is credited on the day it clears. Miss a quarter, and the underpayment penalty accrues from that date until you make it up.

Withholding is different. Whether the custodian remits it in January or the last week of December, the IRS treats every dollar as paid ratably, one-quarter per quarter. That is the entire mechanism. It turns a late lump sum into on-time payments retroactively.

Consider a 74-year-old widow with a $1.2 million traditional IRA, $32,000 in Social Security, and a projected 2026 federal tax bill of $22,000. Her RMD comes in around $45,000. She takes the whole distribution on December 15, tells the custodian to withhold $22,000 for federal (plus whatever her state requires), and pockets the remaining $23,000. The IRS logs $5,500 as paid on each quarterly due date. No Form 2210 penalty. No four calendar reminders on the fridge.

Safe Harbor: How Much You Actually Have to Withhold

The withholding has to be enough to clear one of the standard safe harbors for the 2026 tax year:

• 90% of your current-year total tax liability, or
• 100% of last year’s total tax (the number on the prior 1040), or
• 110% of last year’s total tax if your prior-year adjusted gross income was over $150,000 ($75,000 if married filing separately).

Hit any one and the penalty disappears. The prior-year safe harbor is the friendliest for retirees, because you already know the number. Pull last year’s 1040, multiply by 1.0 or 1.1 depending on income, and that is your target withholding for the December distribution.

State rules vary. Most piggyback on the federal ratable-withholding treatment, but a few compute their own penalty periods. If you live in a high-tax state, confirm the state safe harbor separately.

Cash-Flow Cost Nobody Mentions

One big December withholding is elegant on paper and uncomfortable in a checking account. You hand the IRS $22,000 in a single week instead of $5,500 four times a year. If that money would otherwise have earned interest, you gave up the yield.

The FDIC national average 12-month CD sits at 1.71% as of August 2026, and top online banks routinely pay three to five times the national average. On $22,000, holding cash all year instead of remitting it in quarters is worth a few hundred dollars at best. For most retirees, the simplicity is worth the giveback.

The real risk is behavioral: forgetting to make the election or discovering in late December that the custodian needs several business days to process the change. Set a November calendar reminder.

Who This Works Best For

Anyone already taking an RMD large enough to cover the year’s tax bill. That is most retirees over age 73, when RMDs kick in under current law. It also works with withholding from a Roth conversion, a pension, or Social Security (via Form W-4V), because all periodic-payment withholding gets the same ratable treatment.

It does not help W-2 earners who already have paycheck withholding, and it does not help anyone whose income is mostly capital gains or self-employment, since those have no withholding hook.

One more household-specific wrinkle: retirees planning around the 2027 Social Security COLA, currently tracking at 3.3%, should rerun the safe-harbor math each January, because a bigger benefit changes both the tax bill and the withholding target.

This is the kind of election worth confirming with a CPA the first time you make it, especially if your income is close to an IRMAA tier or a bracket edge. The ratable-withholding trick is one of nine quiet IRS rules we mapped for retirees in a free tax trap guide, and the others can move real money too.

This article is for informational purposes only and is not tax, legal, or investment advice. Consult a qualified tax professional about your specific situation.

Contact [email protected] for any questions or corrections.