Roth IRA Withholding

[Guest Sarah Brenner]

The Consolidated Appropriations Act 2001 signed into law by the President on December 21 includes provisions that seem to affect withholding for Roth IRA distributions. Are some Roth IRA distributions now not subject to federal withholding? I am not sure what impact these changes have. Any imput would be helpful, thanks

[Guest RPSS]

I was curious about the same issue. It appears that the Act amends section 3405 of the Code to exempt Roth IRAs from the tax withholding requirements. Can someone confirm? Thanks.

[Appleby]

Outside of the Consolidated Appropriations Act 2001 - let's look at the withholding rules.

According to 3405(e)(B)(ii) any amounts "the portion of a distribution or payment which it is reasonable to believe is not includible in gross income…" is not subject to withholding.

Roth IRA distributions, to the extent they are 'qualified' or , if not qualified, does not include earnings from a Roth IRA that has been held for less than 5-years, are not subject to income tax and therefore , not subject to withholding.

If anything, any act or other law would be a clarification of the existing rules

[Appleby]

I just came across this post and though I would update my comments…

Under the Consolidated Appropriations Act of 2001 [PL 106-554], retroactively effective to January 1, 1998, distributions from Roth IRAs(with one exception) are not designated distributions, and therefore are not subject to withholding. The exception applies to earnings on excess contributions returned timely to the IRA owner.

Code Section §3405(e)(1)(B), has also been updated as follows “ For purposes of clause (ii), any distribution or payment from under an individual retirement plan (other than a Roth IRA) shall be treated as includible in gross income”