A Smart Fix for Missed 2025 Estimates

How a 60-day retirement rollover can wipe out IRS penalties.

Here’s an important tax planning strategy that can save you thousands in penalties if you’ve missed estimated tax payments for 2025.

The Penalty Problem

When you don’t make your 2025 estimated tax payments on time, the IRS charges a non-deductible 7 percent penalty that compounds daily.

Because penalties are not deductible, they are considerably more costly than deductible interest.

Simply writing a check today won’t erase the penalties. It only prevents them from growing further. But there is a powerful way to make them disappear entirely.

The One Perfect Solution

By using a retirement account with 60-day rollover provisions, you can eliminate estimated tax penalties instantly. Here’s how:

• Withdraw funds from your IRA, 401(k), or other eligible plan, and direct the custodian to withhold federal income tax.

• Repay the full amount into the retirement account within 60 days using other funds.

The IRS treats the withheld taxes as if they were made evenly across all four estimated tax deadlines. And because you repaid the account within 60 days, the withdrawal is not taxable, and no penalty applies.

Other Options and Pitfalls

If you are age 73 or over, you can use withholding taxes from required minimum distributions (RMDs) to cover both your RMD and your estimated tax needs.

Don’t use a W-2 bonus. It triggers payroll taxes and can reduce your Section 199A deduction—likely more costly (and perhaps far more costly) than the penalty itself.

Disclaimer:
The 60-day rollover strategy is highly time-sensitive and involves strict IRS deadlines. Missing the 60-day repayment window, failing to complete the rollover correctly, or misunderstanding the withholding rules can result in permanent taxation of the withdrawal, early-withdrawal penalties, and additional IRS penalties. This approach should be used only when you fully understand the requirements, and preferably with professional guidance. Do not attempt this strategy if there is any risk you may miss the deadline.