20% Withholding on Distributions from Qualified Employer Plans
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20% Withholding on Distributions from Qualified Employer Plans
Income tax withholding may apply to distributions made from qualified employer plans. Withholding at a rate of 20% is required on a distribution, unless it is transferred directly from your employer to an IRA trustee or another employer plan. The withholding rules do not apply to distributions from IRAs or Simplified Employee Pensions, also known as SEPs. However, if you wish to roll over a qualified plan distribution to an IRA, be sure to transfer the amount directly from your employer to an IRA trustee or another employer plan. Otherwise, 20% of the distribution will be withheld while 100% of the distribution must be rolled over within 60 days. If you don't have the money to cover the 20% shortage, income taxes and possibly a 10% penalty will be due on the amount not rolled over.
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