% Withholding differences

[Guest bigred]

Does anyone know offhand why the IRS requires 20% withholding off of plan distributions that are eligible for rollover vs 10% on IRA distributions? Thanks

[12AX7]

You mean other then the fact that it's the law? Are you perhaps confusing the 10% early withdrawal penalty with the 20% mandatory withholding requirement for ERDs?

[Guest bigred]

You mean other then the fact that it's the law? Are you perhaps confusing the 10% early withdrawal penalty with the 20% mandatory withholding requirement for ERDs?

I didn't explain myself, sorry. Where is it in law that it's 20% withholding for plan distributions vs 10% for IRAs? Is that in ERISA?

[ESOP Guy]

Congress needed money back in the past so they passed a law requiring a 20% withholding on plan distributions.

I know what you are thinking but withholding and the final tax due is not the same. Under Federal budget rules withholding is income the day it is collected and if a refund happens it is an expense when it happens. So to speed up withholding created a one time burst of revenue. Such is the Federal Gov't accounting rules.

It is found in the Internal Revenue Code forget which section.

[masteff]

You mean other then the fact that it's the law? Are you perhaps confusing the 10% early withdrawal penalty with the 20% mandatory withholding requirement for ERDs?

I didn't explain myself, sorry. Where is it in law that it's 20% withholding for plan distributions vs 10% for IRAs? Is that in ERISA?

And your statement is 1/2 wrong: qualified plan and 403(b) annuity distributions that are rollover eligible are subject to a minimum of 20% MANDATORY withholding while distributions that are non-rollover eligible are subject to 10% withholding that can be elected out of.

It's IRC section 3405© (reg 31.3405©-1).

[jpod]

Call me skeptical but my guess on the 20% mandatory was that it was something that could be scored as a revenue raiser, offsetting something else in the same legislation that was a revenue loser.

[QDROphile]

How about an incentive to roll over directly? How about minimizing ability to try to cheat on taxes? Why do you think we have withholding anyway? We don't want the wage slaves to have too much opportunity cheat, only the masters and capitalists get that privilege.

[jevd]

UCA '92. Funds needed for unemployment benefits.