This article addresses the need to coordinate tax planning and retirement withdrawals. When an individual transitions from the workplace to retirement, there is a difference in terms of how taxes are and should be paid.

During working careers, most individuals have taxes withheld incrementally from their paychecks. The goal is to try to break even so that tax is not a major cash flow issue.

As financial planners, we are coordinating and confirming cash flows, and tax planning is an integral part of this. When an individual retires, the relationship changes. IRA distributions, capital gains, and acceleration or deceleration of income all have a profound effect on taxes. We tend to discourage having taxes withheld from moderate pensions, Social Security, and IRA withdrawals simply because it is easier to adjust four estimated payments instead of twelve monthly withdrawals from each of the other income sources.

We understand that many tax preparers try to ensure that people never owe money. But the reality is that we always owe money; the question is how and when we pay for it. We are all in agreement — we don’t want to give the government money unnecessarily. Based on our 35 years of experience, we are a strong advocate of quarterly estimated payments for both federal and state taxes.