Mandatory withholdings - Keogh plan distributions

[Lori Friedman]

An individual (over age 59-1/2 but under age 70-1/2) wants to take as-needed distributions (unequal and nonperiodic) from her profit sharing plan. I believe that:

1. These amounts will be eligible rollover distributions and, thus, subject to the mandatory 20% income tax withholding.

2. The only way to avoid the mandatory 20% withholding tax is to rollover the qualified plan assets to an IRA and then take the distributions. (Note - The individual is phasing out her business, no longer wants to make any plan contributions, and intends to do an IRA rollover/plan termination to avoid future filings of Form 5500-EZ.)

Am I correct?

(Yes, I know that there's no such a thing as a Keogh plan. I use the term as short-hand for a qualified plan sponsored by a self-employed individual with no employees. All of you who get tense over the use of the "Keogh" term -- please don't smack me around.)

[Kimberly S]

As the sponsor of such a plan, what you suggested makes sense to me. As a plan admininstrator, I've not encountered this situation, so I'm not positive.

[AndyH]

Yes, Lori, I agree. I know of no exceptions to the 20% if the amount would qualify for rollover treatment. That is the right way to handle it.

[Appleby]

I agree too. 59 ½ is the retirement age under the plan right?

No smacking around ( this time)