 Taxing required minimum distribution
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 Dear
Tax Talk,
Required minimum distributions: I have been taking them each December and I'm having tax withheld at that time. A friend now tells me estimated taxes should have been paid each quarter. I usually get a refund when I file. I haven't heard any warnings from the IRS. Am I in trouble?
-- Engleman
 Dear
Engleman,
The government likes to get its tax money in advance. When you're
not having taxes withheld on your income, you should make quarterly
estimated tax payments. The quarterly payments should be sufficient
to cover the lesser of last year's income tax or 90 percent of what
you expect to owe in the current year. Some higher income taxpayers
have to pay 110 percent of their prior year's tax.
The payments are somewhat quarterly, as their due
dates are the 15th day of April, June, September and January of
the succeeding year. Each payment should be equal to 25 percent
of the required payment for the year. If you fail to pay the required
amount, or you do not pay on time or evenly, you could be subject
to a penalty for underpaying estimated tax. The penalty is equivalent
to an interest charge currently of 8 percent per annum.
When you take your required minimum distribution from your IRA,
you can request that taxes be withheld. Withheld taxes are treated
as paid evenly throughout the year regardless of when they are actually
withheld. Therefore the taxes withheld on your December withdrawal
could be used to cover the taxes not only on your IRA but on other
sources of income. By doing this you avoid the need to make quarterly
payments that you might not remember to pay when due. You can adjust
your withholding to cover your taxes by completing line 3 of Form
W-4P and presenting it to the custodian of your IRA funds at
the time you make your required minimum distribution.
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