November 23, 2011 1:58 pm

Withholding on Retirement Distributions

Distributions from qualified retirement plans are subject to a mandatory 20% withholding unless the funds are directly transferred to another retirement plan or IRA. However, other types of retirement plan distributions are subject to different mandatory withholding rules, or you can opt for voluntary withholding.

Periodic payments. For distributions payable over more than 1 year, such as pension benefits, you can choose between mandatory withholding based on wage withholding tables or your own withholding. This can be at a different rate or a specific amount of additional tax for each payment.

Nonperiodic payments. For distributions such as IRA distributions payable on demand, a mandatory 10% withholding applies unless you elect not to have any withholding taken from the payment.

You’ll need to complete Form W-4P to put alternative withholding into effect.

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FACT: 

Tax-related identity theft continues to be a problem for individuals. The Taxpayer Advocate Service saw a 157% increase in such cases from March 2011 to March 2013.

Source: National Taxpayer Advocate Semi-Annual Report, 6/30/13

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