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Subject Author Date
Withholding required on 401(k) dpb 09-22-2008
Posted by dpb on September 22, 2008, 4:01 pm
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Requested a withdrawal (over 59.5 so no issues of penalty) from a small
401(k) from a (relatively) short employer.

Was informed it was "the law" that would have to withhold 25%.

When informed other firms didn't require that, of course, the telephone
robot couldn't do other than read the supplied script and claim
infallibility.

This is internal procedure and subterfuge of using a convenient whipping
boy of the IRS as an excuse rather than reality, correct?

--

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Posted by Phil Marti on September 22, 2008, 4:22 pm
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"dpb" wrote:

> Requested a withdrawal (over 59.5 so no issues of penalty) from a small
> 401(k) from a (relatively) short employer.
>
> Was informed it was "the law" that would have to withhold 25%.
>
> When informed other firms didn't require that, of course, the telephone
> robot couldn't do other than read the supplied script and claim
> infallibility.
>
> This is internal procedure and subterfuge of using a convenient whipping
> boy of the IRS as an excuse rather than reality, correct?

It is likely that 20% withholding was required. I have no idea what you're
talking about in your reference to "other firms," but if you're talking
about IRAs the rules are different.

See the discussion beginning on page 8 of IRS Publication 575.

--
Phil Marti
Clarksburg, MD

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by JoeTaxpayer on September 22, 2008, 4:37 pm
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Phil Marti wrote:
> "dpb" wrote:
>
>
>>Requested a withdrawal (over 59.5 so no issues of penalty) from a small
>>401(k) from a (relatively) short employer.
>>
>>Was informed it was "the law" that would have to withhold 25%.
>>
>>When informed other firms didn't require that, of course, the telephone
>>robot couldn't do other than read the supplied script and claim
>>infallibility.
>>
>>This is internal procedure and subterfuge of using a convenient whipping
>>boy of the IRS as an excuse rather than reality, correct?
>
>
> It is likely that 20% withholding was required. I have no idea what you're
> talking about in your reference to "other firms," but if you're talking
> about IRAs the rules are different.
>
> See the discussion beginning on page 8 of IRS Publication 575.

You might consider transferring this small 401(k) to an IRA, to avoid
this annoyance.
Joe

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by dpb on September 23, 2008, 9:32 am
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JoeTaxpayer wrote:
...
>> It is likely that 20% withholding was required. I have no idea what
>> you're talking about in your reference to "other firms," but if you're
>> talking about IRAs the rules are different.
...
Actually, that's precisely what I was referring to...I didn't realize
there was a difference between the two in that respect and since the
robot couldn't give me any reference, I assumed it was bs...

> You might consider transferring this small 401(k) to an IRA, to avoid
> this annoyance.

Actually, that is what I did for exactly that reason as the last straw;
I was still curious, however... :)

--

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by dpb on September 23, 2008, 7:17 pm
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Phil Marti wrote:
...
> It is likely that 20% withholding was required. I have no idea what you're
> talking about in your reference to "other firms," but if you're talking
> about IRAs the rules are different.
>
> See the discussion beginning on page 8 of IRS Publication 575.


It would certainly be nice(r) if the Plan Administrators would train
their representatives to at least have the references to what
requirements are. They couldn't answer a single question wrt to the issue.

I see the 20% was, indeed, applicable, but Vanguard insisted they were
going to withhold 25%. At that point since we pay estimates anyway and
compute them on the basis of planned withdrawals it was simply
intolerable so as noted in the other response just changed horses in
midstream and initiated the rollover.

Thanks for the correct Publication reference...

--

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

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