Do I Need a W-4P Form for RMD Tax Withholding?

[cocoanuts]

Exactly. I will send in an estimated tax payment by Jan 15th. (BTW, the amounts are unknown.)

[dmertz]

An additional thought with regard to this.  I would expect that for distributions from the 401(k) that are not made in the form of annuity would mean providing the payer with Form W-4R, not Form W-4P.  The instructions for Form W-4R define periodic payments as those received in "installments."  I don't see how RMDs could be considered to be amounts paid in installments since the distribution is not restricted to the just the minimum required.

[ela8549]

I just got off the phone with Fidelity and I, too, was told that the default withholdings have decreased and that if I wanted my standard 10% withholding on my RMD distribution I would need to complete Form W4-P.  It appears after reading the form that it is for periodic payments and not for my lump sum RMD payment.  I'm so confused.  I'm going to call Fidelity back.  

[cocoanuts]

I spoke with 3 reps at Fidelity. They were trained to begin using the W-4P form this year. I ended up just filling out the form on the phone for them (all my lines were zero). And they no longer withhold taxes for state.  Oh, and one of them said early on that the RMD is now considered periodic and was not before. That is how they were trained. 

[vsefcik]

Has anyone asked their Fidelity rep if form W-4R can be used?  The instructions for this form include the statement "Complete Form W-4R to have payers withhold the correct amount of federal income tax from your nonperiodic payment or eligible rollover distribution from an employer retirement plan, annuity (including a commercial annuity), or individual retirement arrangement (IRA)."

[cocoanuts]

Because the two reps at Fidelity that I spoke to insisted that the RMD is now considered "periodic" and was not previously, I did not suggest that form, even though I read the same thing on the IRS website. I am unable to track this "change" or when it happened, only that Fidelity insists their company training and the IRS want it handled via the W-4P. 

[vsefcik]

I talked with a Fidelity rep today.  When I asked about using Form W-4R she said that I could use it.  However, five minutes after we ended the conversation she called me back and said that she was wrong.  Form W-4R cannot  be used and Form W-4P must be used.  We then filled out the W-4P form during the phone conversation and I left all lines blank except Step 4(c) (Extra Withholding).  I specified an amount which was a guess of what my tax withholding should be. 

I have two IRA accounts at Fidelity, a 403(B) and a DCP (Defined Contribution Plan).  I have to complete another Form W-4P for the DCP account next week, after the RMD for the 403(B) plan is distributed.  The W-4P for the DCP will be to specify a different amount for Step 4(c).  I then will try to determine if I need to make an estimated tax payment in mid-January, 2024.

[cocoanuts]

I have an IRA account at Morgan Stanley. My advisor there has already issued my RMD from that account. He took out 15% for state and 15% for federal as he always has. Told me in October that he has no knowledge of any IRS change in how withholding is to be handled (when I mentioned what Fidelity said). Fine by me.

[dmertz]

As far as I can tell, using Form W-4P and leaving Step 2 blank will result in tax withholding equal to the expected tax liability as if your distribution from the corresponding account plus one-half of the standard deduction for your filing status is the only income being reported on your tax return.  Any amount that you specify on Form W-4P line 4(c) is an additional amount of withholding beyond that.  For example, if you file as Single for 2023 and leave Step 2 blank, withholding on an annual periodic payment of $30,000 would be $2,750 plus whatever amount you specify on line 4(c).  See Worksheet 1B of IRS Pub 15-T for details:  https://www.irs.gov/pub/irs-pdf/p15t.pdf

[cocoanuts]

Just for closure sake, I finally received my RMD from Fidelity. They did NOT withhold any federal taxes at all (my discussion with them after filling out the W-4P form was that a "default" amount of 10% would be withheld).  And as I expected, NO state taxes were withheld either. I asked them to please deposit the RMD directly into my bank account as they have that information because of recent mailbox thefts. They MAILED it to me, and it took over 10 days to receive (each day checking the mailbox for fear of theft). Last week, I REMOVED my 401K from Fidelity and opened an IRA with another financial institution. I am so done with Fidelity. Today, I am making estimated tax payments to both state and federal to cover what Fidelity continues to call a "mishap." 

P.S. When I spoke to Fidelity on December 6, they said no taxes were withheld because I failed to indicate an amount in the ADDITIONAL TAXES line on the form. What??!! 

[pickle3]

Hope what I'm adding is of value and not too late for this post.  I started dealing with a W4P form for the 1st time last week trying to adjust the tax withholding on my wife's monthly annuity payments from Thrivent Financial.  While Thrivent was not as bad as what you encountered with Fidelity, they were stubbornly unhelpful.  All they would say is we need it to adjust anything for federal taxes, and go see a tax advisor if you need help with it.  So after reading & re-reading the form's instructions, searching Google & YouTube, (a waste of time) I simply submitted the form to Thrivent with $10 on line 4(c) ... the "extra withholding" line.  I left everything else in Steps 2, 3 & 4 blank.  I told the wife that was an "experiment" to see if, or how next month's payment changes, as the form was so confusing I had no idea how to properly fill it out.  Although I do appreciate the link to Pub 15T that dmertz provided.  That was helpful.  I'll come back once we see the next deposit & let you know.

I wonder, but do not know, if this new withholding form is as confusing for financial firms as it is to laymen investors.  I hate to mention this, but I also adjusted tax withholdings some monthly IRA withdrawals (not RMD) from Vanguard last week as well.  They gave me the option of submitting a new W-4P form or changing the percentage withdrawals over the phone with them, which I did.  Honest.