What is the difference between an installment payment and a periodic payment?

[FundeK]

Probably a silly question, but the terms are used interchangeably around the office. Is there a difference?

[david rigby]

Similar, but both terms are used inconsistently. Better approach might be to specify:

- the frequency of the periodic payment (monthly, quarterly, annual) and

- whether it has a term certain (such as ten years) or is a life annuity.

[Appleby]

Good question Fundek…and because of that it creates confusion for clients when we explain the withholding rules. Another approach is to follow the guidelines in Form W-4P, specifically the definition on periodic and non-periodic payments. Nonperiodic payments are the ones that can be installment payments

http://www.irs.gov/pub/irs-pdf/fw4p.pdf

[FundeK]

I read through the Form W-4P instructions and have a few questions.

Periodic Payments. Withholding from periodic payments of a pension or annuity is figured in the same manner as withholding from wages.

Is a 401(k)/PS plan considered a pension plan for these purposes, or does it only refer to MPP and DB plans when referring to pension plans?

Would an installment payment over the life expectancy of a participant in a 401(k) plan be considered a periodic payment or a nonperiodic payment.

Also, the instructions mention that distributions from an IRA that are payable on demand are treated as nonperiodic. What does "on demand" mean and how would that apply to a 401(k) or PS plan?

Thanks

[Appleby]

I read through the Form W-4P instructions and have a few questions.

Periodic Payments.  Withholding from periodic payments of a pension or annuity is figured in the same manner as withholding from wages.

Is a 401(k)/PS plan considered a pension plan for these purposes, or does it only refer to MPP and DB plans when referring to pension plans?

For helpful definitions, See IRS publication 575- page 3 of the 2004 version. http://www.irs.gov/pub/irs-pdf/p575.pdf

Would an installment payment over the life expectancy of a participant in a 401(k) plan be considered a periodic payment or a nonperiodic payment. 

No

Also, the instructions mention that distributions from an IRA that are payable on demand are treated as nonperiodic.  What does "on demand" mean and how would that apply to a 401(k) or PS plan?

Generally, if you can make ad-hoc distributions, then it is "on demand”…unlike an annuity contract , where a stream of payments are pre-determined . Eligible distributions from a 401(k) or profit sharing plan would generally be considered ‘on-demand’ payments- IMO