- 1). Check your age to see if you will be turning 70 1/2 this year. If you are 70 1/2 or older, you must start taking required minimum distributions from your traditional IRA or 401(k), regardless of any earned income you may or may not have.
- 2). Review your accounts to see how much you have in traditional IRA accounts and 401(k) plans, and how much you hold in Roth IRA accounts. You are not required to take a required minimum distribution from any Roth IRA, since the distributions from those accounts come out tax-free.
- 3). Use a required minimum distribution calculator like those provided by the IRS (Resources) to calculate the amount you have to take out this year. Be sure to take out at least that much, since failing to take your RMD can result in a penalty equal to 50 percent of the amount you should have taken.
- 4). Enter all of the income information you have into a tax preparation software package to estimate how much you may owe in additional taxes. Plug in the amount you expect to make in wages, plus the RMD you are required to take and any interest, dividends or capital gains you expect to earn. Use these figures to calculate your total tax.
- 5). Compare the amount you expect to owe on taxes to the amount you expect to be withtheld from your paycheck, pension checks and other sources of income. You can annualize the withholding on your paycheck by multiplying the current withholding times the number of pay periods. If you get paid twice a month and your pay stub shows $100 tax withheld, the annual withholding figure should be around $2600.
- 6). Set aside extra money if your calculations show that you will owe additional taxes when you file your return. This allows you to pay promptly and avoid additional penalties and interest from the IRS.