Tax withholding on 2nd distribution

[Guest Giovanni]

An employee who terminated in Jan 2004 was paid out in 2004 and 20% tax was withheld. Since the Plan is Safe Harbor, he received a $47 contribution which was deposited to his account in March 2005. Is 20% withholding required on his second distribution since it's less than $200?

[JanetM]

It is common to do clean up distribution in same manner as original, logic being that the entire distribution is treated in same fashion.

If the took cash and had tax withheld I would do the same with subsequent amount. If they had rolled the first distribution you would have to issue the second amount as rollover.

[Guest TAG]

No, you are not required to withhold 20% on the second distribution. The participant may elect to withhold on his/her distribution form though. Of course, assuming not a rollover.

Key point here is first distribution is in 2004, second distribution is in 2005. Two different years, two different 1099-R forms.

Check your State for local requirements as they are all different.

TAG

[Blinky the 3-eyed Fish]

Janet, common practice and correctness are not necessarily the same thing. Unless you are within the 90 days of the distribution election forms being signed, you cannot simply "do the same" with the subsequent distribution.

The $200 rule aggregates calendar year distributions, so TAG is correct that you can just pay out without withholding. If it was still in the same calendar year, then new election forms would have to be issued.

[JanetM]

You're right blinky, must have spaced the fact the original was in 2004 and this is not 2005.

wonder if this is how senility starts?