Witholding 20% 72(t) distributions from 403(b) and 401(k)

You are here:
< Back

L1: Witholding 20% 72(t) distributions from 403(b) and 401(k)Thank you for this great web site. If I can set up a 72(t) from either a 403(b) or 401(k) does the company withold 20% prepayment of taxes. Thank you in advance.2009-08-26 18:29, By: Maverick, IP: [63.66.47.208]
L2: Witholding 20% 72(t) distributions from 403(b) and 401(k)You can only get that question answered by the company – check with your Plan Administrator.2009-08-26 18:40, By: Gfw, IP: [216.80.125.206]

L3: Witholding 20% 72(t) distributions from 403(b) and 401(k)Ok Thank You. so there is no IRS reg that would mandate it. Is that correct? 2009-08-26 18:45, By: Maverick, IP: [63.66.47.208]

L4: Witholding 20% 72(t) distributions from 403(b) and 401(k)What I said is that you should talk to you Plan Administrator.
They can answer your question and ultimately they would do any withholding.2009-08-26 18:48, By: Gfw, IP: [216.80.125.206]

L4: Witholding 20% 72(t) distributions from 403(b) and 401(k)”Ok Thank You. so there is no IRS reg that would mandate it. Is that correct?”
Let me answer your question this way:
The tax bill passed in 1993 installed the 20% mandatory withholding for all distributions FROM qualified plans paid DIRECTLY TO plan participants. The idea was for The Government to get a “free loan” from those whoDID NOTuse the “trustee-to-trustee transfer” method to rollover their plans to an IRA. So for those who said, “Send me the money so I can spend it or stick it in the bank,” the 20% withholding applies.
Jim2009-08-26 19:05, By: Jim, IP: [70.167.81.119]

L3: Witholding 20% 72(t) distributions from 403(b) and 401(k)Gordon is right that you should check with your Plan Administrator through your company’s HR Department. However, my understanding is that ANY distribution from a Qualified Plan like a 401(k) directly to you IS subject to the 20% withholding, which is just a large”down payment” on your tax bill for the calendar year. I’m not sure for the 403(b).
If you have separated from the company then you are eligible for the IRA Rollover using the trustee-to-trustee method and you will have more flexibility than leaving the assets with the K-plan. One of the flexibilities is the option to decidehow much if any tax to withhold from your SEPP Plan distributions. Also, when you process the IRA Rollover they will not withhold any taxes and the entire K-plan balance will transfer to the new IRA.
If you are still working then you must be able to take “in-service” withdrawals, and your Plan Administrator is the same source to answer this question.
GFW: Thanks.
Jim2009-08-26 18:51, By: Jim, IP: [70.167.81.119]

L4: Witholding 20% 72(t) distributions from 403(b) and 401(k)Good stuff.Thnak you for your answer and insight. 2009-08-26 19:13, By: Maverick, IP: [63.66.47.208]

L4: Witholding 20% 72(t) distributions from 403(b) and 401(k)The reason you should check with the plan administrator hinges on whether the plan acknowledges your SEPP plan or not. If they recognize the plan, there should be NO mandatory withholding because mandatory 20% withholding only applies to ERDs (eligible rollover distributions). A SEPP distribution is NOT rollover eligible and therefore the mandatory withholding should not apply, although you could request optional withholding.
But the main point is that the plan may NOT recognize your SEPP just as IRA custodians are currently electing to do, and if they do not recognize it, then they will apply the withholding.
As Jim indicated, this is yet another reason why it is better to use IRA or IRA rollover accounts in this situation for your SEPP plan. You have more control, more options, and usually more support for your SEPP plan. And if you are still in service, I would not even consider a SEPP from an active plan as there are too many things that could happen to bust the plan.2009-08-26 19:16, By: Alan S., IP: [24.116.165.60]

L5: Witholding 20% 72(t) distributions from 403(b) and 401(k)Thanks Alan for the observance that only ERD’s are subject to the 20% mandatory tax withholding. The more I think about it, I think you caught me on this one once before. Put 2 marks on the wall for you!
Jim2009-08-26 21:49, By: Jim, IP: [70.167.81.119]

L6: Witholding 20% 72(t) distributions from 403(b) and 401(k)Yeah, Jim, I think I remember that. Actually,the ruleis counter intuitive and does not make much sense.
If itCAN be rolled over, it probably will be and will end up non taxable and on these there is mandatory withholding. Yet, on distributions such as SEPPs and RMDs that cannot be rolled over and therefore WILL be taxable, withholding is optional! There must be a logical reason, but I have no idea what it is.2009-08-26 22:30, By: Alan S., IP: [24.116.165.60]

L7: Witholding 20% 72(t) distributions from 403(b) and 401(k)Logical reasoning for something designed by Congress???
You are kidding!!!
Jim2009-08-27 14:28, By: Jim, IP: [70.167.81.119]