Waiver of mandatory 20% withholding for COVID-19 distribution

Submitted by Robert Vashko on Thu, 2020-09-10 22:21

Had a weird call today – client claims that *large financial institution serving as 401(k) admin* can facilitate a CRD from client’s 401(k) account, but is still withholding the 20% in taxes, the requirement for which was waived by CARES.

I know that the adoption of CARES 2202 is optional, and I have seen some plans reduce the max available CRD amount to $50k instead of $100k. Can the plan likewise mandate that the 20% be withheld, even though it’s not mandatory?

My thought is that the most likely explanation is that communication wires got crossed between the client and teh customer service rep. But assuming we call back and it’s confirmed that the 20% will be withheld from the client’s CRD, is that something the employer is allowed to do? If so, are they within bounds to keep referring to it as “mandatory”?



Submitted by riiupw afrass on Wed, 2020-11-04 16:17

I do not think all countries give honest data regarding real situation with the number of infected people. It is enough to look at the countries where the second wave is starting. I am from https://worldpostalcode.com/united-states/indiana/indianapolis and the situation is not very satisfying here. So I do not believe China has completely overcome the virus.

Submitted by Alan - IRA critic on Wed, 2020-11-04 20:23

  • A qualified plan is allowed to reject or only partially adopt CARES CRD provisions, therefore they can reject a participant’s W-4P declining withholding. Moreover, the CRD must be distributed by 12/30 so the withholding will be 2020 withholding. The participant would probably elect to report CRD gross income ratably over 3 years, so if they wish to replace the withheld amount gradually, they can do so. Meanwhile, the 2020 withholding may result in a tax refund for 2020, particulary if CRD income is reported over 3 years.
  • Possible reasons for the plan’s withholding requirement is limitation in their processing system that required 20% withholding on eligible rollover distributions. But this is still fairly rare, since most plans are able to handle rejection of mandatory withholding for CRDs.
  • There is also a parallel situation where are plan does not adopt CRDs at all, but the participant otherwise qualifies for one, takes the distribution (with 20% withheld) and reports it as a CRD on Form 8915 E.

Submitted by riiupw afrass on Fri, 2020-11-06 13:36

Hey guys! I have just joined this forum, so looking for the users from my location. 

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