Rules for Withholding Tax
- Withholding from IRA distributions is voluntary, which means that the IRA owner or beneficiary can choose whether or not to have taxes withheld. Except for annuities, federal withholding from IRA distributions must be at least 10% of the gross distribution amount.
- Withholding from a qualified plan, 403(b) and governmental 457(b) distribution is determined by whether the amount is rollover eligible, and if so, whether the amount is paid to the IRA owner or beneficiary, or directly rolled over to an eligible retirement account. If the amount is rollover eligible, and is paid directly to the participant, the payor must withhold 20% for federal income tax. If the amount is directly rolled over, the mandatory 20% withholding does not apply. For amounts that are not rollover eligible, withholding is voluntary.
- Withholding rules differ for distributions sent out of the United States
- “Periodic payments. Withholding from periodic payments of a pension or annuity is figured in the same manner as withholding from wages. Periodic payments are made in installments at regular intervals over a period of more than 1 year. They may be paid annually, quarterly, monthly, etc. Form W-4P
- Unless you are a nonresident alien, withholding is required on any periodic or nonperiodic payments that are delivered to you outside the United States or its possessions. You cannot choose not to have federal income tax withheld
- If amounts are withheld from a distribution that is later rolled over, you may make-up the withheld amount out-of-pocket.