A. Yes, there is a trick for people over 70.5 to simplify paying tax each year.
Tax Paying Pain Points for Retirees
For most retirees, you need to pay estimated taxes 4 times a year - first quarterly payment due in April, then June, September, and the following January. You need to pay at least 90% of your current tax year's liability or 100% of what you owed the previous tax year (or 110% if your prior year's adjusted gross income was more than $150K), otherwise you will owe underpayment penalty.
Not only can making such estimates be a pain, writing these 4 checks can disrupt your cash flow.
A Trick to Simplify Paying Taxes
Starting from age 70.5, retirees must take required minimum distributions from their traditional lRAs, based on the balance in the accounts on the previous December 31 divided by a factor provided by the IRS. If you don't need the IRA money to live on, you can wait till December to take your RMD and ask the sponsor to withhold a big chunk for the IRS, enough to cover your estimated tax on the IRA payout and all of your other taxable income for the year.
Here is the reason why this trick works - amounts withheld from IRA distributions are considered paid evenly throughout the year, even if made in a lump sum payment at year end.
So if your RMD is large enough to cover your entire tax bill, you can keep your cash safely in the IRA most of the year, avoid withholding on other sources of retirement income, skip the painful quarterly estimated payments ... and still avoid underpayment penalty!
The Caveat
RMD withholding might not work when it comes to state estimated taxes because some IRA sponsors won't withhold state income taxes. Check with your IRA sponsor for details.