Define benefit cash out

[sfphere]

How do I know if taxes have already been applied from my Defined benefits cash out?

[KNDavis]

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 

[sfphere]

Do you have a link to the 2024 Tax estimator?

[Andrew_W]

Assuming that this is a pension/defined benefit plan withdrawal, it would be best to contact your plan administrator or reference any statement/disbursement notice you received to confirm if taxes were withheld. 

If any taxes have been withheld, they may or may not be sufficient for your annual total income tax. If the payments are on-going, the plan administrator will accept a W-4P or the information it contains to adjust your withholdings. You may wish to use a W-4 calculator like this one if you have other sources of income or need to make any adjustments: TurboTax W-4 Calculator

Your plan administrator will issue you a 1099-R form in early 2025. This will report the withdrawal and any taxes withheld, and should be included with your 2024 tax return.

[KNDavis]

I don't believe the 2024 tax estimator has been released, but the 2023 version should give you a reasonable estimate of whether you need to pay in additional tax.  The difference is that the 2023 version will use 2023 tax tables and standard deduction amounts, resulting in a slightly higher estimate of taxes owed compared to if it used the 2024 amounts.