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Hi, my name is ***** ***** my goal here is to provide you with the most complete and accurate answer possible.
You are actually allowed to withhold any amount you want from 0-100%. You would want to make sure you have enough money paid in through withholding and any estimated tax payments to avoid an estimated tax penalty. There are several ways to avoid being subject to an estimated tax penalty. One is to pay, either in withholding or four equal estimated tax installments, the same amount as last year's tax (110% of last year's tax if the prior year AGI was more than $150,000). I would expect that surrendering the annuity will greatly increase his income in the current year and you would want to make sure he has fully paid enough to prevent an estimated tax penalty based upon last year's tax.
Another method is to pay, either in withholding or four equal estimated tax installments, at least 90% of the current year tax. Your father can make up any missed estimated tax payments through withholding since withholding is treated as being paid equally throughout the year. There is another method to do an annualization calculation which is helpful if someone receives most of their income at the end of the year (such as a bonus). In this instance, they would be able to pay less in the earlier part of the year and the balance at the end when they actually receive their income.
Finally, if you elect to withhold very little because you are making payments based upon last year's tax, you would want to make sure you have saved enough cash to pay the balance due when the return is due. The federal and CT government follows the same exceptions with minor differences. CT does not require high AGI individuals to pay 110% of last year's tax though CT penalty rate is higher than the federal one.
I hope this answers your question. Let me know if I can clarify anything or answer any additional questions. Jonathan