Federal Withholding

[austin3515]

Thre Questions:

Q1: If a participant wants more than 20% withheld from a eligible rollover distrbution, or more than 10% from an ineligible rollover distribution, are people getting a signed WP-4? Our forms have always provided for the regular defaults, but we often get participants who want to do the right thing (i.e., withhold appropriately), and most of them end up not following through with the WP-4 and just go with the defaults.

Q2: Can any provide me any sort of logic for why the government wants to make it so hard for participants to have their taxes adequately paid via withholding???

Q3: I've seen many providers forms allow participants to request more than the minimum withholding without requiring the WP-4. Have others seen this too?

The more I think about it, I can't help but wonder if this is just not enforced. What IRS agent would care that a participant had MORE than the minimum withholding withheld? I mean, the government gets their money quicker and the risk that they'll never get it dimishes?

What is the story? Any thoughts or, even better, knowledge on the subject?

[david rigby]

W-4P http://www.irs.gov/pub/irs-pdf/fw4p.pdf

1. By reviewing the instructions, one sees that this form can be used for additional withholding (greater than the 10% or 20%, as applicable).

2. You used "logic" and "government" in the same sentence. Ha Ha!

3. No.

[austin3515]

I've found 2 or 3 major providers NOT asking for WP-4's. Anyone esle agree that they're out there?

[Bird]

In the one or two instances where someone wanted more than 20%, we had them put the election in writing, but did not use a W-4P. I think it should be in writing, not necessarily on W-4P, but no, I don't think there is any enforcement. The only time it would come up is if someone (a distributee) complained, and if they asked for it, even if just verbally, they shouldn't have reason to complain.

[Appleby]

Most payors incorporate the required language into their distribution/withdrawal request forms in order to satisfy the Form W4-P notice requirements. But whether separate or incorporated, it must be provided.

I recall there may be some penalty for failing to provide the withholding notice.

[austin3515]

The question is, does it ever actually happen. I have never seen it in 7 years, and I find that strange.

[John Feldt ERPA CPC QPA]

I have seen several providers where they have only given the 402(f) notice, the distribution election form that asks for the participant election and participant consent (and spousal consent). That may actually be the majority of those we've seen. Second place on the list are the providers that provide the Federal W-4P plus the applicable state income tax withholding form for pensions/annuities. Lastly, we have seen quite a few where the W-4P itself is not provided, but a subtitute form with the same options and explanations.

The experience when a substitute or an actual W-4P is provided varies, but here's what's been happening: Although 85 - 90% of the forms are filled out alright, other participants attempt to select no withholding, then get upset when 20% is withheld (saying I plan to roll it over in 60 days...) Or, selecting 20% withholding when they elected a direct rollover. Or making some other combination of contradictory choices.