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Get your taxes done using TurboTax
The IRS requires a 20% withholding as the minimum for retirement plans but not IRAs. Somebody doing the IRA distribution may have confused the rules since the 20% tax is so common. It does mean the government held your money and you lost the investment benefit. It will be part of your refund when you file as the tax that was withheld will be accounted for on the 1040, line 25b.
References:
- IRS Publication 590-B (Distributions from IRAs
- 26 U.S. Code § 3405(c): states that any "eligible rollover distribution" from a qualified plan (like a 401k, 403b, or 457b) is subject to a mandatory 20% withholding if the funds are paid directly to you. You can ask them to withhold more; but, not less.
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