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Are banks, brokerages, & fund companies required to hold a certain amount of federal taxes when taking RMD's ? After 2 replies I''ll add that RMD was at Vanguard & e-mail sent their way Friday. I saw no mention of tax withholding.
Hi @Derf, I'm not a tax expert. From experience, I believe the IRS requires a 10% withholding, at the time you take the RMD, unless you tell the brokerage, bank or fund company not to do so. However, you will be required to pay any taxes owed when you file your annual return. They may require you to sign a form stating that you do not wish any taxes withheld.
I have lined below information that supports my above comment.
“Your IRA custodian is required to apply federal income tax withholding rules to a traditional IRA distribution when more than $200 is distributed from your IRA in a year. ... Unless your IRA distribution is from an IRA annuity that has been annuitized, your withholding choices are to withhold 0%, 10%, or more than 10%. You can even choose to have 100% of your IRA distribution withheld! If you don’t make a choice, the choice will be made for you. If you don’t choose anything after being notified, the custodian must withhold 10% .... Your IRA custodian is required to inform you about withholding, but the custodian isn’t required to tell you how much you should actually withhold.” https://www.irahelp.com/slottreport/withholding-and-your-ira-what-you-need-know
My read of the above is that fiduciaries are required to notify you of the tax liability. They appear also to be required to allow you to decline withholding. But if you do not decline, than they must withhold 10%. At Price, where I typically take distributions, the online process is pretty straightforward. A pop-up window appears and asks you to designate a % to be withheld or to “decline” withholding. However, if you don’t make a choice, they withhold the 10%. The rules pertain to traditional IRAs. From what I’ve read, the rule above does not pertain to Roths under most circumstances.
Be advised that some states also have withholding rules for the state taxes owed. In Michigan’s case, a mandatory withholding is stipulated. In this case, the option to decline isn’t provided by fiduciary. But (at least in the case of Michigan) you can still “opt -out” of the mandatory withholding by submitting a signed State of Michigan opt-out form (available online) signifying that you do not want withholding. To be on the safe side, I submit a new one to Price every January. Additionally, Michigan appears to apply the withholding to Roths as well. Since Roths aren’t subject to tax, you’d eventually be able to reclaim that through the refund process. Still - really bizarre.
@Derf - Not sure why you submitted this via email? Perhaps you were referring to an online transaction?
@hank; Thanks for your reply. You're also right ,as it was an online transaction. The e-mail as sent pertained to where to find tax withholding at Vanguard for RMD's Derf
Mr. Vanguard replied early Monday morning, so hats off for that quick reply. It appears I was on the path , but turned right instead of left at the intersection. I will try to complete the RMD later to day or Tuesday.
Comments
I have lined below information that supports my above comment.
https://www.google.com/search?client=tablet-android-alco&ei=VxYOXbv1DI70tAWajriwAg&q=Does+IRS+require+taxes+to+be+withheld+on+RMD?&oq=Does+IRS+require+taxes+to+be+withheld+on+RMD?&gs_l=mobile-gws-wiz-serp.12..33i299l2.1043635.1043635..1047603...0.0..0.227.227.2-1......0....1.........0i71.9B_S9KjGYLs
My read of the above is that fiduciaries are required to notify you of the tax liability. They appear also to be required to allow you to decline withholding. But if you do not decline, than they must withhold 10%. At Price, where I typically take distributions, the online process is pretty straightforward. A pop-up window appears and asks you to designate a % to be withheld or to “decline” withholding. However, if you don’t make a choice, they withhold the 10%. The rules pertain to traditional IRAs. From what I’ve read, the rule above does not pertain to Roths under most circumstances.
Be advised that some states also have withholding rules for the state taxes owed. In Michigan’s case, a mandatory withholding is stipulated. In this case, the option to decline isn’t provided by fiduciary. But (at least in the case of Michigan) you can still “opt -out” of the mandatory withholding by submitting a signed State of Michigan opt-out form (available online) signifying that you do not want withholding. To be on the safe side, I submit a new one to Price every January. Additionally, Michigan appears to apply the withholding to Roths as well. Since Roths aren’t subject to tax, you’d eventually be able to reclaim that through the refund process. Still - really bizarre.
@Derf - Not sure why you submitted this via email? Perhaps you were referring to an online transaction?
Derf
Have a good week, Derf