Are any amounts withheld by the custodian on payment of a distribution from a Traditional IRA?
Internal Revenue Code Section 3405 usually requires the payor of a distribution or payment under an IRA to withhold tax. Withholding from a periodic payment is computed as if the payment were of wages. A flat 10 percent is usually withheld from nonperiodic distributions. Liability for the withholding tax lies with the payor. However, no withholding is required from any portion of a distribution that, “it is reasonable to believe,” is not gross income (e.g., a return of a nondeductible contributions). Moreover, a payee may elect to have no withholding under Internal Revenue Code Section 3405, and payors must notify individual payees of their right so to elect. The election may be made even if the payee expects to owe tax on the distribution or payment, but a payor is required to file an information return reporting the distribution or payment to the IRS whether or not the election is made.
Please contact one of our IRA Experts at 800-472-0646 for more information.