Disclosure of withholding options
TEFRA notice requirement for disclosure of withholding options reads that the disclosure is to be sent, “at the time of distribution or at such earlier time as may be provided in regulations,” for IRA distributions. The IRA form references a “scheduled distribution” as one made at a regular interval (monthly, quarterly, annually).
How often do you send a new disclosure to those IRA owners who receive scheduled distributions at regular intervals?
Also, do you ever use a W-4P?
Permalink Submitted by Alan - IRA critic on Fri, 2024-03-01 16:03
The installment plan should be reviewed to determine if it extends more than one year. If so, Form W4 P applies, and if not the newer Form W4 R is to be used, as is the case for the majority of IRA distributions.
The W4 P instructions state that if payments began prior to 2024, the current WH election remains in place until a superceding W4 P is submitted, but that is not required. Most IRA owners should have a plan for withholding rates or estimates and would not want to complete the worksheet. For IRA distributions the default rate is 10% unless a higher rate is selected or WH is declined.
Due to general confusion arising from spinning off the W-4R, I doubt that custodians have developed a uniform approach regarding requiring these forms.