tax w/holding on fees too?

[TPApril]

Distribution requested at $1,000

Related Fees are $100

Would the 20% withholding apply to $1,000 or $900?  (So would 1099-R reflect a $900 or $1,000 distribution?)

[RatherBeGolfing]

As long as it is paid from the participants plan account, it would be $900 distribution and $100 fee/expense.

[ESOP Guy]

I have seen both but my understanding the correct way is $900 as long as the $100 is coming from their account. 

[BG5150]

I would process it as a $100 fee then a $1,000 distribution.  $800 check, $200 withholding.  $1,000 1099-R.

[PamR]

The fee comes out first and is not income to the participant.  1099 should say $900 and you withhold on $900.  If you had someone with a balance under $100 and you took it all as a fee, would you send them a 1099?  Of course not, they didn't recieve any income.

[Bird]

18 minutes ago, BG5150 said:

I would process it as a $100 fee then a $1,000 distribution.  $800 check, $200 withholding.  $1,000 1099-R.

You might want to re-think or re-type that.  (How is the fee paid?)

[RatherBeGolfing]

18 minutes ago, Bird said:

You might want to re-think or re-type that.  (How is the fee paid?)

I think it assumes more than $1,000 as an account balance but with a $1,000 request.  Which I would agree with.

[Bill Presson]

2 hours ago, RatherBeGolfing said:

I think it assumes more than $1,000 as an account balance but with a $1,000 request.  Which I would agree with.

Agreed.

[Larry Starr]

19 hours ago, TPApril said:

Distribution requested at $1,000

Related Fees are $100

Would the 20% withholding apply to $1,000 or $900?  (So would 1099-R reflect a $900 or $1,000 distribution?)

You would take $100 from the account, make a $1000 distribution with $800 to the participant and $200 to withholding.  The account is debited $1100.  1099 would obviously show $1000.  I am surprised you even suggest otherwise.

[ESOP Guy]

I guess it depends if the $1,000 is the total vested account balance and this is a full payment.  I think the gross taxable payment is $900 and you withhold on that.

 

If this is an in-service and there is $1,100 in the account I can see how you pay $1,000 and take the $100 from the account.  That is how loans are done.  

[Larry Starr]

6 hours ago, ESOP Guy said:

I guess it depends if the $1,000 is the total vested account balance and this is a full payment.  I think the gross taxable payment is $900 and you withhold on that.

 

If this is an in-service and there is $1,100 in the account I can see how you pay $1,000 and take the $100 from the account.  That is how loans are done.  

Well, though the original poster did not qualify the comment, I have to think if it was a total distribution, that would have been included in the question.  But of course.... maybe not!

[TPApril]

2 hours ago, Larry Starr said:

You would take $100 from the account, make a $1000 distribution with $800 to the participant and $200 to withholding.  The account is debited $1100.  1099 would obviously show $1000.  I am surprised you even suggest otherwise.

Larry - I'm surprised you are surprised at anything you see these days ;).

[Bird]

18 hours ago, RatherBeGolfing said:

I think it assumes more than $1,000 as an account balance but with a $1,000 request.  Which I would agree with.

Fair enough.  It might depend on whether this is record-kept and who the recordkeeper is; might have to request $1100 to get there.

[Bill Presson]

5 hours ago, Bird said:

Fair enough.  It might depend on whether this is record-kept and who the recordkeeper is; might have to request $1100 to get there.

Wait. Let's say the account balance is $10k or more. Are you saying I would have to request an $1,100 distribution to get $1,000? I've never seen that. If I request a complete distribution, it's quite common for the fee to be deducted and then the balance distributed. But if I requested $1,000, I would expect the fee to be deducted from the account and then the $1,000 distributed (approporiate w/h, etc).

WCP

[Bird]

2 hours ago, Bill Presson said:

Wait. Let's say the account balance is $10k or more. Are you saying I would have to request an $1,100 distribution to get $1,000? I've never seen that. If I request a complete distribution, it's quite common for the fee to be deducted and then the balance distributed. But if I requested $1,000, I would expect the fee to be deducted from the account and then the $1,000 distributed (approporiate w/h, etc).

I'm actually not 100% sure.  But I am certain that at least one platform - Am Funds PPTPA - takes the loan fee out of the requested amount, so you have to gross up.  I don't think that is universal.  I might be out in left field on all of this though, especially since I misread the original Q.

[BG5150]

I've seen loans done that way (for whatever reason).  But, ostensibly, loans aren't taxed.

[Bill Presson]

3 hours ago, Bird said:

I'm actually not 100% sure.  But I am certain that at least one platform - Am Funds PPTPA - takes the loan fee out of the requested amount, so you have to gross up.  I don't think that is universal.  I might be out in left field on all of this though, especially since I misread the original Q.

Interesting. Thanks.

WCP