I’ve got to take my first RMD in 2022 from a Keogh I’ve had with Schwab for decades. Is it true that I will be required to have 20% of my RMD withheld for federal taxes? Is it possible to avoid the 20% federal withholding and just pay my 2022 tax obligation in my quarterly estimated tax payments? If tax withholding is unavoidable, what percentage of my RMD should be withheld for my Iowa state tax obligation? Thanks.
The 20% mandatory federal tax withholding applies only to distributions that are eligible to be rolled over. Since RMDs can never be rolled over, there is no federal tax withholding required.
I never heard of this rule, but what do I know.
your analysis makes no sense.
If you are going to roll over, that's exactly when you don't want to have tax withheld.
If you are over age 72, you probably do want to have tax withheld to
a) avoid underwithholding penalty, and
b) ensure your tax is paid.
some custodians insist on a minimum percentage to be withheld.
You just have to contact the custodian to find out their particular rules for Federal and State.
@fanfare Not my analysis and who said IRS rules made sense. 😁
From IRS Topic 413
Any taxable eligible rollover distribution paid to you from an employer-sponsored retirement plan is subject to a mandatory income tax withholding of 20%, even if you intend to roll it over later. If you do roll it over and want to defer tax on the entire taxable portion, you'll have to add funds from other sources equal to the amount withheld. You can choose instead a direct rollover, in which you have the payer transfer a distribution directly to another eligible retirement plan (including an IRA). The 20% mandatory withholding doesn't apply in a direct rollover.
Thanks to all who replied.
I'm not an expert in the rules and terminology of Keogh RMDs, but what I'm up against is the RMD requirement for those reaching age 72. I'm not trying to roll over anything, unless I just plain misunderstand the definition of rollover; I'm going to take the RMD from my Keogh in cash and use it for 2022 living expenses. I'd like to avoid tax withholding on the RMD for cash flow reasons - I'd rather pay the taxes triggered by the RMD across four quarterly estimated tax payments than in an upfront 20% withholding.
With all that in mind, I believe that @Bsch4477 got it right in stating that no 20% withholding is required on the RMD. Does anyone see it differently? Thanks.