For variable-income earners — founders, partners, RSU-heavy employees, anyone with significant non-W-2 income — the largest predictable lumps are the four federal estimated-tax payments due April 15, June 15, September 15, and January 15, plus the parallel state payments where applicable. The safe-harbor calculation (section “Safe Harbor”) sets the floor that avoids underpayment penalties: 110% of prior-year total tax divided into four equal installments works even in a year when current-year income is wildly different. That makes the bucket sizes known in January for the whole calendar year ahead.
Fund the buckets by laddering Treasuries to the four deadlines. The standard structure for a CA household with $400,000 of expected federal-plus-state tax under the safe harbor:
Each tranche earns the state-tax-exempt T-bill yield from purchase until maturity. Refill the ladder in January with the next year’s safe-harbor amount as soon as the prior year’s return crystallizes the new 110% figure.
For households that pay current-year actual rather than the safe harbor (section “Safe Harbor” explains when each is cheaper), pre-fund the safe-harbor amount and hold any incremental tax owed in the Treasury MMF as a top-up sleeve. The underpayment penalty is the IRS short-term federal rate plus 3%, which in 2026 runs roughly 8% annual non-deductible — expensive enough that over-funding the safe harbor by 10–20% beats cutting it close.