4089 / Are distributions from a tax sheltered annuity subject to withholding?
With respect to distributions other than eligible rollover distributions ( Q 4007), amounts will be withheld from periodic payments at the rates applicable to wage payments and from other distributions at a 10 percent rate. An employee may elect not to have income tax withheld from these payments. Tax will not be withheld on amounts distributed where it is reasonable to believe they will not be includable in income.1
Any eligible rollover distribution made after December 31, 1992 is subject to mandatory income tax withholding at the rate of 20 percent unless the distributee elects to have the distribution paid by means of a direct rollover.2 This mandatory withholding applies even if the employee’s employment terminated prior to January 1, 1993, and even if the eligible rollover distribution is part of a series of payments that began before January 1, 1993.3 For distributions after 1992 but before October 19, 1995, slightly different rules may be applicable under temporary regulations ( Q 4000).
1. IRC § 3405; Temp. Treas. Reg. § 35.3405-1T, A-20.