I’m being told that the SECURE 2.0 act changed how withholdings are done on IRAs beginning in 2023. My understanding is that it used to be 10% withholding but you could elect 0-100%. This could have been done by client indicating a choice verbally or on a distribution/conversion request form.
Am told that now, it is required that if you do not want 10% you MUST fill out W-4R.
Is this correct? Is this actually a change?
Thanks, -m
This was not part of either Secure Act, it stems back to the TCJA effective in 2018, then the IRS finally broke the former W-4P into two parts, a new W-4P for periodic payments (pensions), and a new W-4R for non periodic distributions from tax deferred accounts including IRAs. I don’t think that custodians have a uniform approach to the so called “requirement” to submit these forms. Further, for retirees who set their withholding to comply with the safe harbor (usually 100%/110% of prior year tax liability), the forms are useless and a waste of time to fill them out completely, and there are no instructions for in kind distributions (eg sending part of your RMD in kind to your taxable brokerage account). The 2024 W-4R instructions also state that for payments that began prior to 2024, your current election carries over, so if you are happy with that there is no need to submit the form. Obviously, the IRS thinks that too many taxpayers are underwithheld.
Permalink Submitted by David Mertz on Fri, 2023-12-22 19:33
Although Form W-4R might now be required, it’s doubtful that the SECURE 2.0 Act has anything to do with that. Form W-4R is essentially unchanged since its introduction at the beginning of 2022. I suspect it’s just a policy of the particular IRA custodian since I’m aware of recent IRA distributions where the IRA custodian has permitted the tax-withholding instruction to be made verbally or online. We’ll see if that changes in 2024.