Rules for Tax Withholding on Distributions from Retirement Plans

Nonperiodic Distributions From an Employer’s Retirement Plan

The federal income tax withholding rate for nonperiodic withdrawals from employer-sponsored retirement plans, like 401(k) or 403(b) plans, is 20%. You should know that even if they might eventually be rolled over to another plan, lump-sum payouts from an employer’s plan are considered nonperiodic distributions.

However, there’s an exception to the rule, and tax doesn’t need to be withheld if the dividend is transferred from one trustee to another in a trustee-to-trustee transfer.

But here’s the thing: you might be subject to an extra 10% tax penalty for early distributions if you receive them before reaching the age of 59 and a half. Click on the next page to read the rest!