Witholding 20% on "small" lump sum distribution.

[Moe Howard]

If a former participant's vested balance in his employer's PSP is only a small amount (say $10), and he requests a lumpsum distribution of it (no roll over) .... must the plan withhold 20% ? Or can the plan simply pay him the entire $ 10 ?

[pmacduff]

The mandatory withholding rules state that any distribution under $200 does not require the 20% withholding...hope this helps. (FYI - we have an investment vendor...one of the bigger names...who insists on withholding on ALL distributions...we don't complain because they do all the 1099s and withholding submissions !

[BFree]

If the $10 distribution is related to a previous, withholding-eligible distribution, I believe the 20% will apply to the $10. This would be the case if it is a residual distribution.

[Blinky the 3-eyed Fish]

BFree is referring to the rule that you aggregate distributions in the calendar year to determine the $200 threshold.