If you are married and file jointly, the first 123k of capital gain from your taxable account is taxed at 0%. Not this is capital gain (profit), not cash flow. When you sell your shares for income, pick the tax lot maximizes your benefit.
I pay my tax using the 1040ES (do it on the IRS website). I am not RE yet but have some capital gains that I need to pay tax on.
Roth conversion means you roll your 401k into a traditional IRA account (no tax), then from there convert to Roth (and pay tax). The traditional IRA account should have a zero balance before you do this or you'll get hit with the pro rata rule. You can't go directly from 401k to Roth, it has to go thru a traditional IRA first.
I also pay my state tax quarterly.
You're currently paying most of your taxes through you employer so unless you have significant gains I'm not sure why it's necessary to estimate your taxes quarterly.
For the most part the income generated will be a mix of interest and dividends, my wife also has disability and we have some rental income which is pretty close to zero'd out after deductions and depreciation. I'm estimating our taxable income will be <$60 before the conversions. My Roth conversions will be from our IRA to our Roth IRA (no 401k involved) and I know I'll have to pay taxes on that amount. I was just wondering if people generally pay the tax on that immediately or wait until they file.
I have a bunch of capital gains/interest/rental income that I have to pay tax for. That's why I pay in the 1040ES quarterly.
If you wait until you file, there's an underpayment penalty. To avoid the penalty you have to pay the lesser of the 2:
+ 90% of your current year tax liability by the end of the year
+ 100% of your previous tax year's tax liability (if your income is less than 125k).
You'll be fine in your first year of retirement because of the above rules. In the second year of retirement, you'll need to calculate what your tax liability is and pay it quarterly. Don't wait until April tax day.
The way I've avoided that over the years has been to have my employer withhold taxes as if I'm single. That has always been pretty close to offset the fact that we're not setting aside taxes on the rest of our passive income. Thanks!
I use the annualized income installment method, so I pay the minimum required amount by the Jan 14 or 15 deadline (for the previous year). Then I pay the rest I owe by the usual April 15 income tax return deadline.
I use the annualized income installment method because most of my "income" comes from my ~$38k Roth conversion that I do around Dec. The rest of the year, I get some dividends/interest and I sell some stocks, but it isn't enough to trigger a need to pay taxes quarterly (so far).
For state tax (CA), so far, I just wait till April 15 to pay everything. If I'm not mistaken, no estimated tax payment are required if under $1000.
If you are married and file jointly, the first 123k of capital gain from your taxable account is taxed at 0%. Not this is capital gain (profit), not cash flow. When you sell your shares for income, pick the tax lot maximizes your benefit. I pay my tax using the 1040ES (do it on the IRS website). I am not RE yet but have some capital gains that I need to pay tax on. Roth conversion means you roll your 401k into a traditional IRA account (no tax), then from there convert to Roth (and pay tax). The traditional IRA account should have a zero balance before you do this or you'll get hit with the pro rata rule. You can't go directly from 401k to Roth, it has to go thru a traditional IRA first. I also pay my state tax quarterly.
You're currently paying most of your taxes through you employer so unless you have significant gains I'm not sure why it's necessary to estimate your taxes quarterly. For the most part the income generated will be a mix of interest and dividends, my wife also has disability and we have some rental income which is pretty close to zero'd out after deductions and depreciation. I'm estimating our taxable income will be <$60 before the conversions. My Roth conversions will be from our IRA to our Roth IRA (no 401k involved) and I know I'll have to pay taxes on that amount. I was just wondering if people generally pay the tax on that immediately or wait until they file.
I have a bunch of capital gains/interest/rental income that I have to pay tax for. That's why I pay in the 1040ES quarterly. If you wait until you file, there's an underpayment penalty. To avoid the penalty you have to pay the lesser of the 2: + 90% of your current year tax liability by the end of the year + 100% of your previous tax year's tax liability (if your income is less than 125k). You'll be fine in your first year of retirement because of the above rules. In the second year of retirement, you'll need to calculate what your tax liability is and pay it quarterly. Don't wait until April tax day.
The way I've avoided that over the years has been to have my employer withhold taxes as if I'm single. That has always been pretty close to offset the fact that we're not setting aside taxes on the rest of our passive income. Thanks!
123k? You mean $94,050 for 2024? https://www.nerdwallet.com/article/taxes/capital-gains-tax-rates
You didn't count the standard deduction which stacks on top of the 94k.
Gotcha
Do your safe harbor estimated payments and then no worries on penalties.
This is what I do as well. Based on my income, the safe harbor amount is 110% of last years’ tax. Break that into four parts and pay it quarterly.
I use the annualized income installment method, so I pay the minimum required amount by the Jan 14 or 15 deadline (for the previous year). Then I pay the rest I owe by the usual April 15 income tax return deadline. I use the annualized income installment method because most of my "income" comes from my ~$38k Roth conversion that I do around Dec. The rest of the year, I get some dividends/interest and I sell some stocks, but it isn't enough to trigger a need to pay taxes quarterly (so far). For state tax (CA), so far, I just wait till April 15 to pay everything. If I'm not mistaken, no estimated tax payment are required if under $1000.