Cash Balance plan distribution
It is my understanding that when a distribution is paid directly to a participant from a cash balance defined benefit plan there is always a mandatory 20% (minimum) withholding.
That is, when the participant does NOT rollover the distribution to a TIRA but instead has the distribution check paid directly to him/her, the plan is required to withhold 20% for federal taxes from the gross amount distributed.
Only IRA accounts can be distributed without the 20% (minimum) withholding and then the entire amount can be rolled over within 60 days (without the IRA owner having to come up with the 20% that was withheld and sent to the IRS).
Is my understanding correct?
Permalink Submitted by Alan - IRA critic on Thu, 2016-06-23 17:30
Basically correct, except that IRA distributions have a default withholding rate of 10%(except Roth IRAs), which can be declined or increased upon request. There is no mandatory IRA distribution withholding, but IRA owners who fail to decline withholding and simply request a distribution are likely to end up with 10% withheld. 20% mandatory withholding applies only to the pre tax portion of a qualified retirement plan distribution that is rollover eligible. An RMD is not rollover eligible, so there is no mandatory withholding on the RMD portion of any distribution.
Permalink Submitted by Robert Wright on Thu, 2016-06-23 18:05
Thanks Alan.