Hi sfphere!
When you cash out of a defined benefit plan, the plan administrator will usually withhold federal taxes at 20%. If you're not sure whether taxes have been withheld, you can ask the plan administrator.
Depending on your personal tax situation, 20% may or may not be enough, depending on your filing status and other income.
In order to avoid owing taxes when you file your tax return, I recommend using a tax calculator to estimate your total tax for the year. Here's a link to TurboTax's TaxCaster.
If it looks like you will owe additional tax above and beyond what was withheld from the defined benefit distribution, you have options to pay in additional tax to avoid underpayment penalties.
- If you have wage income, you can increase your withholding to cover the tax owed from the defined benefit distribution.
- You can make a one-time tax payment on the IRS website.
- You can make quarterly estimated tax payments.
I hope you find this information helpful!
Sincerely,
Kimberly, CPA for over 30 years
@sfphere
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