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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10482
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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My wife recently passed away and I just completed all the

Customer Question

My wife recently passed away and I just completed all the paperwork necessary to get her pension paid out. One of the forms they had me complete was an IRS Form W-P4 or W-4P and on it I specifically checked that I do not want federal taxes withheld from the payout. They company is telling that that form doesn't matter, that by law they have to take 20%, which I'll get back when I file . Why do they have to take 20% when the IRS form very clearly says it's up to me if I want Federal Taxes withheld or not.
Thank you
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Any distributions that are not direct rollovers to an IRA have a mandatory withholding of 20%

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Now, if you've checked that you want a direct rollover to an IRA what they've told you is incorrect

Expert:  Lane replied 1 year ago.

Under the tax law (title 26 U.S. code) you have the right to do what's called a DIRECT transfer (some call this a DIRECT rollover or a custodial transfer) to an IRA with NO withholding and no tax (this is called a spousal IRA)

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If, however, you have asked for a check with the intention of physically rolling it over (NEVER wise with a beneficial IRA like this) they DO have to withhold

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Expert:  Lane replied 1 year ago.

If you're taking a direct transfer to a spousal IRA, someone on the front lines there is giving you bad information.

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Again, I am a CFP and Chartered Retirement Plans Specialist. Id be glad to talk with them for you

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Let me know

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Lane

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