Minimum distribution withholding

[alexa]

In a 401(k) plan in lieu of getting particiapnt to complete a Form W-4P, how does one withhold?

Only the minimum is being paid

It is my understanding that you must give the participant the choice to opt out

But if W-4P either not given or not returned, what do you do?

Thanks

[Guest dmj1998]

alexa48,

I'm not sure I fully understand you question. If you are talking about federal tax withholding for a distribution from a 401(k), it depends on whether or not the distribution is considered an ERD (eligible rollover distribution). If it is an ERD and the amount is paid directly to the participant, you are required to withhold 20% for federal tax purposes. You can allow a participant to elect more, but they cannot opt out. If it is not an ERD, then there is no mandatory withholding amount. The distribution may still be taxable to the participant, though, so the practical practice would be to withhold something like 10% and allow the participant to elect a different amount (higher or lower). I hope this helps - if not, please post some more details.

[alexa]

This is an age 701/2 minimum required distributino which is not eligible for rollover therefore, as you said, not subject to the mandatory 20%. I woudl tend to agree with you that no withholdign required ar tiem of distribution but advisable to get particiaptn to compelte a Form W-4P

But my question is what if you don't have time to get a FOrm W-4P back or participant doesn't return in time for required beginning date namely 4/1?

I woudl not withhold anyhting, although I knwo some trustees withhold a flat 10%, but is this OK?

Thanks

[Medusa]

My understanding is that by default, 10% withholding applies pursuant to IRC Section 3405(B)(1), unless the participant opts out.

[alexa]

So you would consider a minumum distribution a nonperiodic distribution?

[Medusa]

Not really. I would actually vote for it being a periodic distribution, in which case there really should be a W-4P. However, the Code provides that where no W-4P is provided, the withholding defaults to married with three allowances. Most plans are not set up to handle this, so I think the "pragmatic" response was to treat it as nonperiodic and do the 10%. My point was, "zero" is definitely not the correct answer.