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Tax on cash Distribution


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Participant under 591/2 wants her $6500 cash from a profit sharing plan.

How much must be withheld by the plan administrator (is it still 20%)

Is the withheld amount sent to the IRS  with form 945?

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If it's eligible for rollover then mandatory 20% withholding applies. I'm assuming the participant has an in-service distributable event under the terms of the plan.

If it's a hardship withdrawal, that's not eligible for rollover. I believe the presumption on those is 10% federal withholding but a participant can elect a different amount even 0% on form W4-R.

As for timing and submission of withholding see ESOP's link.

 

edited for Bill's correction.

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41 minutes ago, Lou S. said:

If it's a hardship withdrawal, that's not eligible for rollover. I believe the presumption on those is 10% federal withholding but a participant can elect a different amount even 0% on form W4-P.

W4-P is for periodic payments. W4-R is for nonperiodic payments.

And it's very difficult to not spell "periodic" as "idiotic" most of the time.

William C. Presson, ERPA, QPA, QKA
bill.presson@gmail.com
C 205.994.4070

 

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