Distributions from an employer-sponsored retirement plan may be subject to withholding. In some cases, withholding is mandatory and in others the recipient can elect out.
In general, the payor of any designated distribution that is an eligible rollover distribution must withhold an amount equal to 20% of the distribution. The recipient may not elect out of the withholding requirement. However, eligible rollover distributions are not subject to withholding if expected distributions are less than $200 for the year. Also, 20% withholding generally only applies to any previously untaxed amount. The most important exception by far is that no withholding is required if the plan directly rolls over (in a trustee-to-trustee transfer) the eligible rollover distribution amount to another qualified retirement plan or IRA.
The payor of a periodic payment (one made at regular intervals for more than one year) that isn’t an eligible rollover distribution must withhold from the payment as if it were a wage payment for the appropriate payroll period. Generally, the plan administrator must withhold at the rate for a married individual with 3 withholding exemptions. However, recipients have the right to elect no withholding or elect to have a different amount withheld and revoke the election at any time.
A nonperiodic payment is a distribution that usually isn’t made at regular intervals and isn’t an eligible rollover distribution. Nonperiodic payments generally are subject to 10% withholding. The recipient may elect no withholding or have a different amount withheld by filing a Form W-4P with the plan administrator.
Padgett Business Services of North Oakland 