4091 / Are death benefits paid to an employee’s beneficiary under a tax sheltered annuity subject to withholding?

With respect to distributions other than eligible rollover distributions ( Q 4007), payments to a surviving spouse or beneficiary are subject to income tax withholding unless the spouse or beneficiary elects not to have withholding apply. Amounts need not be withheld on any part of the distribution where it is reasonable to believe those amounts will not be includable in gross income. Annuity payments are subject to withholding at the rate applicable to wages; other payments are subject to withholding at a 10 percent rate.¹ In the case of an eligible rollover distribution, a surviving spouse or other beneficiary is subject to the same mandatory withholding rules as the employee ( Q 4088).

1.  IRC § 3405; Temp. Treas. Reg. §§ 35.3405-1T, A-17; 35.3405-1T, A-28.