Mandatory Withholding
Lets say one’s RMD from his 401(k) is $5,000, however he asks for a $10,000 withdrawal, his first for the year. Is it true that there would be $1,000 withheld for taxes on the excess, however withhoding on the RMD is optional (can be waived)? Al
Permalink Submitted by Alan Spross on Mon, 2010-01-11 19:26
Al,
That is correct. 20% mandatory withholding only applies to eligible rollover distributions, which in this case is limited to 5,000. Therefore, $1,000 is the minimum withholding here, but it can optionally higher, by requesting the 20% rate to be applied to the RMD as well, or even a higher rate if desired.
If there is a lack of flexibility in the system, it could be that the plan would have to process these as two separate distributions to get to the desired amount of withholding for each piece.