ira withholding rules - pension-specialists.com withholding.pdfira withholding rules the...

IRA Withholding Rules

Rev 1-7-2011

Copyright 2011 © Collin W. Fritz & Associates, Ltd. “The Pension Specialists”All rights reserved. No part of this presentation may be reproduced in any form and by any means

without prior written permission from Collin W. Fritz & Associates, Ltd.


Th A di ti f thi t ti i il bl ith b h b iThe Audio portion of this presentation is available either by phone or by usingthe speakers and microphone on your PC. The phone number is provided to youin the confirmation from CWF and again at the time you join the meeting.

You will need the access code that was emailed to you in the confirmation fromCWF. The confirmation code is 9 digits in length e.g. 123‐456‐789

You will also need the Audio Pin # which is shown to you at the time you join thismeeting

If you need assistance re‐connecting please call CWF at 800.346.3961

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Federal Withholding ProceduresO i• Overview• Generally only applies to traditional, SEP and SIMPLE IRAs

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IRA Withholding Rules • Overview

• Generally only applies to traditional SEP and SIMPLE IRAs• Generally only applies to traditional, SEP and SIMPLE IRAs• Before withholding from a Roth IRA, check with your Legal and

Compliance Counsel

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IRA Withholding Rules • Election Procedure and Documentation

• 10% Federal withholdings is required on every traditional IRA SEP and SIMPLE• 10% Federal withholdings is required on every traditional IRA, SEP, and SIMPLE distribution unless an election is properly completed

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• 10% Federal withholdings is required on every traditional IRA SEP and SIMPLE• 10% Federal withholdings is required on every traditional IRA, SEP, and SIMPLE distribution unless an election is properly completed• This is withholding NOT the collection of an IRS penalty

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• 10% Federal withholdings is required on every traditional IRA SEP and SIMPLE• 10% Federal withholdings is required on every traditional IRA, SEP, and SIMPLE distribution unless an election is properly completed• This is withholding NOT the collection of an IRS penalty• Remember, Qualified Retirement Plan distributions have

20% MANDATORY withholding

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• 10% Federal withholdings is required on every traditional IRA SEP and SIMPLE• 10% Federal withholdings is required on every traditional IRA, SEP, and SIMPLE distribution unless an election is properly completed

• Documentation is required, IRS W‐4P or valid substitute must be completed

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IRA Withholding Rules IRS Form W‐4P, Withholding Certificate for Pension or Annuity Payments

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IRA Withholding Rules IRS Form W‐4P, Withholding Certificate for Pension or Annuity Payments

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• 10% Federal withholdings is required on every traditional IRA distribution unless• 10% Federal withholdings is required on every traditional IRA distribution unless an election is properly completed

• Documentation is required, IRS W‐4P or valid substitute must be completed

Documentation is required. IRS W‐4P or valid substitute

CWF# 57

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• Documentation is required, IRS W‐4P or valid substitute must be completed• IRA Accountholder/Beneficiary must be given three choices

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• Elect NOT to have income tax withheld

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• Elect NOT to have income tax withheld• Elect 10% income tax withheld

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• Elect NOT to have income tax withheld• Elect 10% income tax withheld• Elect and additional amount to be withheld

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• Elect NOT to have income tax withheld• Elect 10% income tax withheld• Elect and additional amount to be withheld• Must be signed and dated

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/• Penalty on the IRA custodian/trustee for non‐compliance is the amount ofwithholding that should have been withheld and was not

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• Penalty on the IRA custodian/trustee for non‐compliance could be amount oftaxes owed by the IRA Accountholder/Beneficiarytaxes owed by the IRA Accountholder/Beneficiary

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• Once an election is completed, it is valid forever

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• Once an election is completed, it is valid forever• IRA Accountholder/Beneficiary must be allowed to change the election

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IRA Withholding Rules • Election Procedure and Documentation• Notice Requirements• Notice Requirements

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• Proper notice must be given prior to every distribution

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• Proper notice must be given prior to every distribution • Unscheduled distributions are usually in compliance with

good Distribution Documentation

CWFCWF Form # 57

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• Proper notice must be given prior to every distribution• Only once‐per‐year if receiving 4 or more scheduled distributions

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• Proper notice must be given prior to every distribution• Only once‐per‐year if receiving 4 or more scheduled distributions• When mailed, must be received no sooner than 6 months before the distribution

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• Proper notice must be given prior to every distribution• Only once‐per‐year if receiving 4 or more scheduled distributions• When mailed, must be received no sooner than 6 months before the distribution

h l d b d h bl d f b f• When mailed, must be received within a reasonable period of time before the distribution

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• Proper notice must be given prior to every distribution• Penalty on the IRA custodian/trustee for non‐compliance is $10 for each failure

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IRA Withholding Rules • Election Procedure and Documentation• Notice Requirements• Notice Requirements• Deposit requirements

• Monthly, semi‐weekly, or Annually

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• Monthly, semi‐weekly, or Annually• Check or Electronic Funds Transfer

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• Electronic Funds Transfer required after December 31, 2010

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• Electronic Funds Transfer required after December 31, 2010• Check if your financial institution qualifies for exception

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IRA Withholding Rules • Reporting Requirements

• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year

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• Annually IRS Form 945 is• Annually, IRS Form 945 is due by January 31 for previous year

A ll IRS F 945Annually, IRS Form 945 is due by January 31 for

the previous yearIRS Form 945

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• Annually IRS Form 945• Annually, IRS Form 945 is due by January 31 for previous year



Ch i f t f 2009Change in format for 2009

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• Annually IRS Form 945• Annually, IRS Form 945 is due by January 31 for previous year



S f t f 2009Same format as for 2009

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Complete Form withComplete Form with basic information

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Read carefully andRead carefully and complete only if applicable

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Federal income taxFederal income tax withheld

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Backup withholdingBackup withholding

Note: Generally doesnot apply to IRAs

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Total taxesTotal taxes

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Total depositsTotal deposits

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Balance dueBalance due

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OverpaymentOverpayment

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Complete if applicable

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Monthly SummaryMonthly Summary

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Third Party DesigneeThird‐Party Designee

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Sign HereSign Here

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Paid Preparer’s Use OnlyPaid Preparer s Use Only

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• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year• Verify all amounts on Form 1099‐R

4

34

M

4

M

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• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year• Verify all amounts on Form 1099‐R• Form 945‐A

Used by semi‐weekly y yscheduled depositors

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• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year• Verify all amounts on Form 1099‐R• Form 945‐A• Calculate and Report Withholding

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IRA Withholding Rules • Basic 10% Calculations

• Example 1: IRA Accountholder asks for a Distribution of $2 575• Example 1: IRA Accountholder asks for a Distribution of $2,575He wants 10% taken out

$2,575 x 10% = $257.50

$257.50 must be withheld from the distribution$2,317.50 is the net amount received by the accountholder

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• Example 2: The IRA Accountholder requests that $1 250 is withheld and• Example 2: The IRA Accountholder requests that $1,250 is withheld and that it should be 10% of the gross distribution

$1,250 divided by 10% (.10) = $12,500

The gross distribution amount is $12,500The net amount is $11,250

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• Example 3: The IRA Accountholder requests a distribution of $4 500 net after• Example 3: The IRA Accountholder requests a distribution of $4,500 net after 10% withholding.

$4,500 divided by 90% (.9) = $5,000

The gross distribution amount is $5,000The net amount is $4,500

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• Example 4: The IRA Accountholder requests a distribution of $4 500 and• Example 4: The IRA Accountholder requests a distribution of $4,500 and request 100% withheld.

$The gross distribution amount is $4,500The net amount is $0

The 1099‐R is completed in this way

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IRA Withholding Rules • IRS Form 1099‐R

IRA Owner 4500.00

O l C t M th d4500.00

X

Only Correct Method

4500.00

1 or 7

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IRA Withholding Rules • 2008 IRS Form 1099‐R

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IRA Withholding Rules • 2009 IRS Form 1099‐R Format remains the same

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• Box 4 – Federal income tax withheld• Box 4 – Federal income tax withheld

Example:IRA owner requests $10,000 from his traditional IRA withIRA owner requests $10,000 from his traditional IRA with Federal Income Tax Withholding of $2,000. The IRA Owner is age 50. The IRA custodian issues a check for $8,000

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IRA Owner 10000.00

10000.00

X

2000.00

1

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IRA Withholding Rules • Incorrect IRS Form 1099‐R

IRA Owner 8000.00

8000.00

X

1

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IRA Owner 2000.00

2000.00

X

2000.00

7

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IRA Owner ‐ 2008Only Correct Method

10000.00Only Correct Method

10000.00

X

2000.00

1

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IRA Owner‐2009Only Correct Method


X

2000.00

1

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IRA Owner ‐ 2009 8000.00

I t

X

Incorrect

1

67


IRA Owner 2000.00

I t

X

Incorrect

2000.00

7

68


IRA OwnerOnly Correct Method


X

2000.00

1

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IRA OwnerOnly Correct Method


X

10000.00

2000.00

1

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• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year• Verify all amounts on Form 1099‐R• Form 945‐A• Calculate and Report Withholding • NEW IRS Form 945‐X

Adjusted Annual Return of Withholding Federal Income Tax

or Claim for Refund

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• Calculate and Report Withholding• NEW IRS Form 945‐X

Basic informational data is completed

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Indicate type of ypadjustment

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Line 3 – Indicate Federal Income Tax withheld

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Line 4 – backup withholding should be ZERO for IRAs

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Line 5 – Total of Lines 4 plus 5 shouldLine 5 Total of Lines 4 plus 5 should be the same as line 3 for IRAs

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Page 2 must be completed –Informational data

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Line 6 – Indicate with an “X” if applicable

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Line 7 – A detailed explanation of adjustment/claim is required

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Financial Institution’s Preparer Completes, Signs and Dates

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• Calculate and Report Withholding

Paid Preparer Completes, Signs and Dates if applicable

• NEW IRS Form 945‐X

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IRA Withholding Rules • Non‐resident alien withholding procedures

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• And certain resident aliens• And certain resident aliens

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• Usually 30% withholding is due (Recommended procedure)• Usually 30% withholding is due (Recommended procedure)

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• Usually 30% withholding is due (Recommended procedure)• Usually 30% withholding is due (Recommended procedure)• Could have tax treaty differing percentage

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• Usually 30% withholding is due (Recommended procedure)• Usually 30% withholding is due (Recommended procedure)• Could have tax treaty differing percentage

• IRS Form W‐8BEN or W‐8IMY is required

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• Usually 30% withholding is due (Recommended procedure)• Usually 30% withholding is due (Recommended procedure)• Could have tax treaty differing percentage• Special reporting using IRS Form 1042 series

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• Usually 30% withholding is due (Recommended procedure)• Usually 30% withholding is due (Recommended procedure)• Could have tax treaty differing percentage• Special reporting using IRS Form 1042 series• Rules apply to IRA Accountholders and IRA Beneficiaries

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• Usually 30% withholding is due (Recommended procedure)• Usually 30% withholding is due (Recommended procedure)• Could have tax treaty differing percentage• Special reporting using IRS Form 1042 series• Rules apply to IRA Accountholders and IRA Beneficiaries• IRS Form 1042‐S instead of 1099‐R

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• Usually 30% withholding is due (Recommended procedure)• Usually 30% withholding is due (Recommended procedure)• Could have tax treaty differing percentage• Special reporting using IRS Form 1042 series• IRS Form 1042‐T Transmittal not Form 1096

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• Usually 30% withholding is due (Recommended procedure)• Usually 30% withholding is due (Recommended procedure)• Could have tax treaty differing percentage• Special reporting using IRS Form 1042 series• IRS Form 1042‐T Transmittal not Form 1096• IRS Form 1042

Annual Summarynot Form 945

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IRA Withholding Rules • State withholding procedures may also apply

• Many states have similar withholding procedures• Many states have similar withholding procedures

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IRA Withholding Rules • Backup withholding does NOT apply to IRAs

• IRS FormW 9 can be used for SSN verification however• IRS Form W‐9 can be used for SSN verification however

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call us at 800.346.3961 or

send an e mail to info@pension specialists comsend an e-mail to [email protected]

Copyright 2011 © Collin W. Fritz & Associates, Ltd. “The Pension Specialists”All rights reserved. No part of this presentation may be reproduced in any form and by any means

without prior written permission from Collin W. Fritz & Associates, Ltd.

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