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Incorrect Withholding


Guest djsimonetti

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Guest djsimonetti

P in multi-employer money purchase pension plan retired in 1991 (when witholding was optional), took lump sum and rolled to IRA. P worked in 1997 and 1998 and retired again in 1998. Plan did

not let P elect between cash and trustee-to-trustee transfer. Instead, plan followed P's 1991 election, paid him 80% and witheld 20% in 1999. P wants plan to "undo" the payment and do a T-to-T transfer to his IRA. Is there a procedure for getting the 20% back from the IRS?

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Since payment was made in 1999, has the 20% really gone to the IRS?

Even if withholding has already been paid to IRS, there has probably not been any reporting yet; that would not usually happen until the end of the year. If the plan will have other amounts of withholding during 1999, perhaps the sponsor can "net" the amounts remitted to IRS withholding account. Keep carefull records.

It looks to me like the sponsor made a mistake in not allowing the participant to make an election. Are we still within the 60 days?

The entire payment should be reversed (including the participant repaying the plan). Not sure if there is a problem with any interest earned on the 80%.

Anyone see a problem?

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Guest greymann

Just to follow up on the previous post, withholding is transmitted to the IRS on a quarterly basis on Form 941. So, if we are still in the same quarter, future withholdings in the amount of the erroneous withholding could be directly rolled over, per the instructions of the participant in question (or distributed, if not an "eliglible rollover distribution"), and the proper amount will still be transferred to the IRS. In order words, it can be "netted" out from future withholdings.

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