72T Plan Question
Hello, if you have a 72T plan and one year there is no tax withholdings but in the following year the client withholds taxes but no change to the gross amount. Would withholding taxes break the 72T plan even though there was no change in the annual amount of the plan?
Thank you.
Permalink Submitted by Alan - IRA critic on Wed, 2018-04-25 18:34
No problem there as long as the gross distribution is the same as reflected in Box 1 of the 1099R. The risk of using withholding is that the IRA owner gets mixed up with the gross and net amount received. Another possible risk is that the IRA owner runs short of funds because the IRS received withholding up front rather than by 4/15. In other words, there is some loss of cash flow and use of money that the IRS received through withholding. On the other hand, withholding is deemed paid throughout the year and estimates are credited only when they are actually paid, so withholding is more likely to prevent underpayment penalties.