abcde
This is one of the things I hate about interest bearing accounts.
If she has employment, she can just bump up her withholding there.
But, the magnitude of the interest could be a consideration. $100k that earns $4000 over a year is one thing. A couple of million that earns $80,000 is another. Is the interest going to be enough to change her tax bracket?
Honestly, depending on age of the individual, I would suggest that you suggest a more quick and decisive “figures out” period and jump toward investments that are not interest bearing CD’s,money markets, taxable bonds. Think about dividend heavy stocks, which have less asset risk and more income.
Also, any decent investment house should be able to allocate some of the interest to Uncle Sam as it is earned, I think.
However, I suggest that if there’s any other earnings or income, and if she insists on interest bearing accounts, consider tax free muni bonds - avoid the tax man altogether.
a
To be technical, I meant mutual funds/ETFs and not individual stocks. That’s still verboten? Then muni’s or open a Schwab account for her, get her the CD’s she wants, and have Schwab make quarterly tax payments from the proceeds.
But I contend that if she’s asking for help from an actuary (not just An_actuary) then she should be coached into something that suits her needs and risk tolerance, even if she is initially reluctant.
a
OK, but the higher up on the tax bracket tree she is before the interest, the more muni’s become attractive.
Take her to a name brand investment bank brick and mortar like Schwab or Fidelity. Fund an account. Arrange for them to pay Uncle Sam a portion of the interest when it is paid.
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I use Vanguard myself. Easy to set the fed tax withholding on every withdrawal. I use my marginal FIT rate in the calculation.
So, I sweep all interest into the cash account, and then transfer that to checking about 6 times/year. That results in a pretty accurate estimate for the tax incurred. It may be off by an interest payment or two, and only because all 12 interest periods may not be strictly from the tax year being filed. But it’s always close, no chance of penalty or huge surprise on 4/15
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