After your wealthy clients retire, many income sources—required minimum distributions from retirement accounts, pensions and Social Security, for instance—can complicate tax calculations.

Just like non-retired workers in the wake of tax reform, clients who are high-net-worth retirees need to look at their withholdings to determine if they’ll owe taxes after having too little withheld or will receive a refund after overwithholding.

“Neither situation is good” in the extreme, warned Martin Abo, a CPA with Abo and Company and Abo Cipolla Financial Forensics in Mount Laurel, N.J.

“For taxpayers who have always relied on withholding during their working life, paying taxes after retirement can be a struggle,” said Mary Kay Foss, a CPA in Walnut Creek, Calif. “Interest, dividends and capital gains are all income sources without withholding. Taxpayers either rely on quarterly tax payments or increased withholding from other sources to pay the tax.”

“The most significant concern is the unknown, not just in terms of tax dollars but in terms of the decisions that might accompany [tax] analysis” for wealthy retirees, added Gail Kinsella, a CPA and partner with the Bonadio Group in Syracuse, N.Y. “These individuals spent a lifetime building wealth and planning based on a relatively consistent policy—and now things have changed. Many will feel the pinch from limited property and state and local tax deductions. For those in high-tax states, relocation may become a viable option, or at the least downsizing or renting.”

Different sources of retirement income have varying tax treatments. Pensions and distributions from qualified annuities, for example, typically use the same type of withholding as salary income. Required minimum distributions (RMDs) come with 10-percent federal withholding (your client can select no withholding or a higher percentage). A large portion of Social Security benefits are also subject to tax: 85 percent of the gross amount before Medicare premiums.

“With large RMDs, the HNW person can have their advisor project the annual income and use some or all of the RMD to be paid in withholding to the tax authorities,” Foss said.

“Social Security allows withholding of federal tax but doesn’t allow state taxes to be withheld, so individuals needing state taxes paid will need to still make estimated tax payments,” added Scott Kadrlik, a CPA with Meuwissen, Flygare, Kadrlik & Associates in Eden Prairie, Minn. Retired HNW investors will also draw money from investment accounts, which “may require them to sell capital-gains property, and unexpected gains may cause tax surprises on tax day,” he said.

Ordinarily, taxpayers can avoid underpayment penalties by paying at least 90 percent of their tax during the year, Abo said. But is slow-drip withholding better for HNW retirees than making quarterly estimated tax payments?

“Withholding is better in many ways,” Foss said. “It’s painless—the HNW person doesn’t have to write the check. More important is the way that withholding is treated by the IRS in meeting your tax obligations. All withholding for the year is automatically treated as if it were paid in ratably during the year.” This can head off underpayment penalties and help if your client simply misses a quarterly estimated payment.

With the new standard deduction of $24,000 for a married couple, retirees may not be able to put together enough itemized deductions to exceed this amount. “Taxpayers older than 70½ can make charitable contributions out of their IRAs that are considered qualified charitable distributions,” Kadrlik said. “The monies contributed directly from their IRA as part of their RMD will not be included in their income for the year and will not be deducted as an itemized deduction.

“They’ll get the benefit of the charitable contribution by not reporting the income and still use the full $24,000 standard deduction,” he said.