Withholding on plan distribution

[bzorc]

We have a situation where the balance in a non-qualified plan is being paid to the beneficiary of a deceased participant. Question is whether the payment is subject to federal tax withholding. Has anyone encountered this?

Thanks for any replies.

[Guest EAKarno]

My recollection is that the payment is W2 wages subject to FICA and federal income tax withholding only in the year of the participant's death. Thereafter it is reported on a 1099-R. At that point I know that no FICA is withheld, and I do not believe any federal income tax withholding is required either -- although I do not believe there is any direct authority one way or another on this last point.

[Guest]

I agree that the distribution to a beneficiary is reported on Form 1099R,

I believe that the beneficiary has the election for withholding or not.

[Kirk Maldonado]

Are there any income in respect of a decedent issues present here?

[Guest EAKarno]

Yes, the payments are considered IRD. The beneficiary is entitled to an income tax deduction for that portion of any estate tax paid that was attributable to the present value of the future deferred compensation payments at the time of death.