Tax Withholding on Periodic Distributions
Now it’s time to talk about periodic distributions because they’re subject to withholding using the same methods as wage income, and there are a couple of things you need to know about them.
To let the administrator of your retirement plan know about your withholding preferences, you are required to complete Form W-4P. This is important information and is relevant to the money you get from a traditional IRA retirement plan, an annuity, a stock bonus plan from an employer, a pension, profit-sharing, a commercial annuity you got from an insurance company, or any other deferred compensation plan you might have.
Another thing you can do is choose not to have any federal tax withheld on periodic distributions. You can take care of this by mentioning “No Withholding” in the space available below Step 4(c) on your Form W-4P.
After you do that, you have to fill out sections 1 and 5. Moreover, if you prefer not to have any tax withheld, you might need to make approximate tax payments.
Keep in mind that if you don’t fill out Form W-4P, it means that taxes will be withheld as if you were married and demanding three withholding allowances, so make sure you do your research if you think about tax withholding on distributions from retirement plans.
