Indirect rollover without withholding
I was mistakenly distributed two separate RMDs from my 401K without any tax withholding.
I made an indirect rollover within sixty days into an IRA for the full amount of one of the distributions.
Since the 401K trustee did not withhold the required 20% at the time of the distribution, will I be subject to a tax penalty on the amount not withheld?
Permalink Submitted by Alan - IRA critic on Sat, 2016-12-10 17:55
You originally planned just the RMD distribution. Since the RMD is not an eligible rollover distribution there is no mandatory 20% withholding on it. While there should have been 20% withholding on the additional distribution, the fact that you rolled it over cancelled that out. Therefore, you are exactly where you ordinarily would have been, an RMD without withholding (unless you wanted voluntary withholding on it). With respect to an underpayment penalty, that depends on your entire tax return for the year and how much you will owe. You might have met a safe harbor as well which is usually by paying in estimates or withholding equal to your tax liability for the prior year (or 110% of that for income over 150k). But even if you are billed an underpayment penalty the interest rate is only 4% so will not be much of a penalty.