Annual Notice of Withholding
I have some IRA clients who receive monthly or quarterly distributions and are over 59 1/2. They have elected to have a certain amount of federal tax withheld from each payment. Section 3878 of the IRS code (?) explains that for Periodic payments there must be an annual notice given. But IRA disbursements are considered Nonperiodic payments (Form W-4P) and it says “notice for nonperiodic distributions should be given not earlier than six months prior to the distribution”. Do I have to send out a notice to my clients every six months? Or none at all because it is not required with nonperiodic payments?
Thanks!
Permalink Submitted by Alan Spross on Sun, 2012-10-07 03:56
No, you should not have to send out Notice every 6 months. Once should suffice. The following is copied from Sec 3405 (10)(B)(ii) Nonperiodic distributions:
>>>>>>>>>>>>>>
The payor of any nonperiodic distribution shall transmit to
the payee notice of the right to make any election provided
in subsection (b) at the time of the distribution (or at such
earlier time as may be provided in regulations).
>>>>>>>>>>>>>>
While these payments exhibit some characteristics of periodic payments, the key wording in the W-4P is that IRA distributions that are paid on demand are deemed non periodic. These payments can be started or stopped on demand by the IRA owner, and therefore are considered non periodic.
Permalink Submitted by Denise Appleby on Sun, 2012-10-07 10:05
[quote=”mjchopp”]I have some IRA clients who receive monthly or quarterly distributions and are over 59 1/2. They have elected to have a certain amount of federal tax withheld from each payment. Section 3878 of the IRS code (?) explains that for Periodic payments there must be an annual notice given. But IRA disbursements are considered Nonperiodic payments (Form W-4P) and it says “notice for nonperiodic distributions should be given not earlier than six months prior to the distribution”. Do I have to send out a notice to my clients every six months? Or none at all because it is not required with nonperiodic payments?
Thanks![/quote]
The notice requirements can be confusing. Even though the distributions are payable upon demand, the notice must be provided at least once per year