Your Tax Questions Answered
Mandatory Withholding from 401-K Withdrawals
Kiplinger editorial director Kevin McCormally and fellow tax experts Peter Blank and Mary Beth Franklin tackle your most pressing tax challenges.
April 24, 2009
QUESTION: What is the IRS logic in requiring a mandatory 20% withholding rate on 401-K withdrawals? There should be more flexibility. I have just begun withdrawals from my 401-K and have calculated that I will be over withheld by $3648 at the federal level and $2385 in Maryland for the tax year 2009. Why is this required for 401-Ks and not IRAs? Earnings withholdings can be adjusted by filing a new W-4 with an employer. Why not 401-Ks? KB
KEVIN ANSWERS: Don't blame the IRS. Congress imposed the 20% withholding rule simply as a way to raise revenue.
There's an easy way around it, though. Have your 401(k) withdrawals transferred directly to an IRA. You can then decide how much, if any, tax is withheld from withdrawals from the IRA.
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Reader Comments (1)
Posted by: Tasneem at 12/03/2009 12:24:45 PM
I have lived in my current resident (Oh) for 20 years . I want to buy a new home in Florida, where I am planning to move. Can I qualify for credit? My current home is not sold, it has been on the market for 1 year.