IRA Withholding Rules
Rev 1-7-2011
Copyright 2011 © Collin W. Fritz & Associates, Ltd. “The Pension Specialists”All rights reserved. No part of this presentation may be reproduced in any form and by any means
without prior written permission from Collin W. Fritz & Associates, Ltd.
IRA Withholding Rules
IRA Withholding Rules
Th A di ti f thi t ti i il bl ith b h b iThe Audio portion of this presentation is available either by phone or by usingthe speakers and microphone on your PC. The phone number is provided to youin the confirmation from CWF and again at the time you join the meeting.
You will need the access code that was emailed to you in the confirmation fromCWF. The confirmation code is 9 digits in length e.g. 123‐456‐789
You will also need the Audio Pin # which is shown to you at the time you join thismeeting
If you need assistance re‐connecting please call CWF at 800.346.3961
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IRA Withholding Rules
Federal Withholding ProceduresO i• Overview• Generally only applies to traditional, SEP and SIMPLE IRAs
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IRA Withholding Rules • Overview
• Generally only applies to traditional SEP and SIMPLE IRAs• Generally only applies to traditional, SEP and SIMPLE IRAs• Before withholding from a Roth IRA, check with your Legal and
Compliance Counsel
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IRA Withholding Rules • Election Procedure and Documentation
• 10% Federal withholdings is required on every traditional IRA SEP and SIMPLE• 10% Federal withholdings is required on every traditional IRA, SEP, and SIMPLE distribution unless an election is properly completed
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IRA Withholding Rules • Election Procedure and Documentation
• 10% Federal withholdings is required on every traditional IRA SEP and SIMPLE• 10% Federal withholdings is required on every traditional IRA, SEP, and SIMPLE distribution unless an election is properly completed• This is withholding NOT the collection of an IRS penalty
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IRA Withholding Rules • Election Procedure and Documentation
• 10% Federal withholdings is required on every traditional IRA SEP and SIMPLE• 10% Federal withholdings is required on every traditional IRA, SEP, and SIMPLE distribution unless an election is properly completed• This is withholding NOT the collection of an IRS penalty• Remember, Qualified Retirement Plan distributions have
20% MANDATORY withholding
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IRA Withholding Rules • Election Procedure and Documentation
• 10% Federal withholdings is required on every traditional IRA SEP and SIMPLE• 10% Federal withholdings is required on every traditional IRA, SEP, and SIMPLE distribution unless an election is properly completed
• Documentation is required, IRS W‐4P or valid substitute must be completed
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IRA Withholding Rules IRS Form W‐4P, Withholding Certificate for Pension or Annuity Payments
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IRA Withholding Rules IRS Form W‐4P, Withholding Certificate for Pension or Annuity Payments
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IRA Withholding Rules • Election Procedure and Documentation
• 10% Federal withholdings is required on every traditional IRA distribution unless• 10% Federal withholdings is required on every traditional IRA distribution unless an election is properly completed
• Documentation is required, IRS W‐4P or valid substitute must be completed
Documentation is required. IRS W‐4P or valid substitute
CWF# 57
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IRA Withholding Rules • Election Procedure and Documentation
• 10% Federal withholdings is required on every traditional IRA distribution unless• 10% Federal withholdings is required on every traditional IRA distribution unless an election is properly completed
• Documentation is required, IRS W‐4P or valid substitute must be completed• IRA Accountholder/Beneficiary must be given three choices
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IRA Withholding Rules • Election Procedure and Documentation
• 10% Federal withholdings is required on every traditional IRA distribution unless• 10% Federal withholdings is required on every traditional IRA distribution unless an election is properly completed
• Documentation is required, IRS W‐4P or valid substitute must be completed• IRA Accountholder/Beneficiary must be given three choices
• Elect NOT to have income tax withheld
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IRA Withholding Rules • Election Procedure and Documentation
• 10% Federal withholdings is required on every traditional IRA distribution unless• 10% Federal withholdings is required on every traditional IRA distribution unless an election is properly completed
• Documentation is required, IRS W‐4P or valid substitute must be completed• IRA Accountholder/Beneficiary must be given three choices
• Elect NOT to have income tax withheld• Elect 10% income tax withheld
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IRA Withholding Rules • Election Procedure and Documentation
• 10% Federal withholdings is required on every traditional IRA distribution unless• 10% Federal withholdings is required on every traditional IRA distribution unless an election is properly completed
• Documentation is required, IRS W‐4P or valid substitute must be completed• IRA Accountholder/Beneficiary must be given three choices
• Elect NOT to have income tax withheld• Elect 10% income tax withheld• Elect and additional amount to be withheld
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IRA Withholding Rules • Election Procedure and Documentation
• 10% Federal withholdings is required on every traditional IRA distribution unless• 10% Federal withholdings is required on every traditional IRA distribution unless an election is properly completed
• Documentation is required, IRS W‐4P or valid substitute must be completed• IRA Accountholder/Beneficiary must be given three choices
• Elect NOT to have income tax withheld• Elect 10% income tax withheld• Elect and additional amount to be withheld• Must be signed and dated
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IRA Withholding Rules • Election Procedure and Documentation
• 10% Federal withholdings is required on every traditional IRA distribution unless• 10% Federal withholdings is required on every traditional IRA distribution unless an election is properly completed
• Documentation is required, IRS W‐4P or valid substitute must be completed• IRA Accountholder/Beneficiary must be given three choices
/• Penalty on the IRA custodian/trustee for non‐compliance is the amount ofwithholding that should have been withheld and was not
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IRA Withholding Rules • Election Procedure and Documentation
• 10% Federal withholdings is required on every traditional IRA distribution unless• 10% Federal withholdings is required on every traditional IRA distribution unless an election is properly completed
• Documentation is required, IRS W‐4P or valid substitute must be completed• IRA Accountholder/Beneficiary must be given three choices
/• Penalty on the IRA custodian/trustee for non‐compliance is the amount ofwithholding that should have been withheld and was not
• Penalty on the IRA custodian/trustee for non‐compliance could be amount oftaxes owed by the IRA Accountholder/Beneficiarytaxes owed by the IRA Accountholder/Beneficiary
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IRA Withholding Rules • Election Procedure and Documentation
• 10% Federal withholdings is required on every traditional IRA distribution unless• 10% Federal withholdings is required on every traditional IRA distribution unless an election is properly completed
• Documentation is required, IRS W‐4P or valid substitute must be completed• IRA Accountholder/Beneficiary must be given three choices
/• Penalty on the IRA custodian/trustee for non‐compliance is the amount ofwithholding that should have been withheld and was not
• Penalty on the IRA custodian/trustee for non‐compliance could be amount oftaxes owed by the IRA Accountholder/Beneficiarytaxes owed by the IRA Accountholder/Beneficiary
• Once an election is completed, it is valid forever
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IRA Withholding Rules • Election Procedure and Documentation
• 10% Federal withholdings is required on every traditional IRA distribution unless• 10% Federal withholdings is required on every traditional IRA distribution unless an election is properly completed
• Documentation is required, IRS W‐4P or valid substitute must be completed• IRA Accountholder/Beneficiary must be given three choices
/• Penalty on the IRA custodian/trustee for non‐compliance is the amount ofwithholding that should have been withheld and was not
• Penalty on the IRA custodian/trustee for non‐compliance could be amount oftaxes owed by the IRA Accountholder/Beneficiarytaxes owed by the IRA Accountholder/Beneficiary
• Once an election is completed, it is valid forever• IRA Accountholder/Beneficiary must be allowed to change the election
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IRA Withholding Rules • Election Procedure and Documentation• Notice Requirements• Notice Requirements
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IRA Withholding Rules • Election Procedure and Documentation• Notice Requirements• Notice Requirements
• Proper notice must be given prior to every distribution
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IRA Withholding Rules • Election Procedure and Documentation• Notice Requirements• Notice Requirements
• Proper notice must be given prior to every distribution • Unscheduled distributions are usually in compliance with
good Distribution Documentation
CWFCWF Form # 57
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IRA Withholding Rules • Election Procedure and Documentation• Notice Requirements• Notice Requirements
• Proper notice must be given prior to every distribution• Only once‐per‐year if receiving 4 or more scheduled distributions
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IRA Withholding Rules • Election Procedure and Documentation• Notice Requirements• Notice Requirements
• Proper notice must be given prior to every distribution• Only once‐per‐year if receiving 4 or more scheduled distributions• When mailed, must be received no sooner than 6 months before the distribution
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IRA Withholding Rules • Election Procedure and Documentation• Notice Requirements• Notice Requirements
• Proper notice must be given prior to every distribution• Only once‐per‐year if receiving 4 or more scheduled distributions• When mailed, must be received no sooner than 6 months before the distribution
h l d b d h bl d f b f• When mailed, must be received within a reasonable period of time before the distribution
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IRA Withholding Rules • Election Procedure and Documentation• Notice Requirements• Notice Requirements
• Proper notice must be given prior to every distribution• Penalty on the IRA custodian/trustee for non‐compliance is $10 for each failure
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IRA Withholding Rules • Election Procedure and Documentation• Notice Requirements• Notice Requirements• Deposit requirements
• Monthly, semi‐weekly, or Annually
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IRA Withholding Rules • Election Procedure and Documentation• Notice Requirements• Notice Requirements• Deposit requirements
• Monthly, semi‐weekly, or Annually• Check or Electronic Funds Transfer
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IRA Withholding Rules • Election Procedure and Documentation• Notice Requirements• Notice Requirements• Deposit requirements
• Monthly, semi‐weekly, or Annually• Check or Electronic Funds Transfer
• Electronic Funds Transfer required after December 31, 2010
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IRA Withholding Rules • Election Procedure and Documentation• Notice Requirements• Notice Requirements• Deposit requirements
• Monthly, semi‐weekly, or Annually• Check or Electronic Funds Transfer
• Electronic Funds Transfer required after December 31, 2010• Check if your financial institution qualifies for exception
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is• Annually, IRS Form 945 is due by January 31 for previous year
A ll IRS F 945Annually, IRS Form 945 is due by January 31 for
the previous yearIRS Form 945
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945• Annually, IRS Form 945 is due by January 31 for previous year
A ll IRS F 945Annually, IRS Form 945 is due by January 31 for
the previous yearIRS Form 945
Ch i f t f 2009Change in format for 2009
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945• Annually, IRS Form 945 is due by January 31 for previous year
A ll IRS F 945Annually, IRS Form 945 is due by January 31 for
the previous yearIRS Form 945
S f t f 2009Same format as for 2009
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year
Complete Form withComplete Form with basic information
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year
Read carefully andRead carefully and complete only if applicable
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year
Federal income taxFederal income tax withheld
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year
Backup withholdingBackup withholding
Note: Generally doesnot apply to IRAs
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year
Total taxesTotal taxes
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year
Total depositsTotal deposits
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year
Balance dueBalance due
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year
OverpaymentOverpayment
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year
OverpaymentOverpayment
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year
OverpaymentOverpayment
Complete if applicable
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year
Monthly SummaryMonthly Summary
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year
Third Party DesigneeThird‐Party Designee
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year
Sign HereSign Here
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year
Paid Preparer’s Use OnlyPaid Preparer s Use Only
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year• Verify all amounts on Form 1099‐R
4
34
M
4
M
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year• Verify all amounts on Form 1099‐R• Form 945‐A
Used by semi‐weekly y yscheduled depositors
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year• Verify all amounts on Form 1099‐R• Form 945‐A• Calculate and Report Withholding
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IRA Withholding Rules • Basic 10% Calculations
• Example 1: IRA Accountholder asks for a Distribution of $2 575• Example 1: IRA Accountholder asks for a Distribution of $2,575He wants 10% taken out
$2,575 x 10% = $257.50
$257.50 must be withheld from the distribution$2,317.50 is the net amount received by the accountholder
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IRA Withholding Rules • Basic 10% Calculations
• Example 2: The IRA Accountholder requests that $1 250 is withheld and• Example 2: The IRA Accountholder requests that $1,250 is withheld and that it should be 10% of the gross distribution
$1,250 divided by 10% (.10) = $12,500
The gross distribution amount is $12,500The net amount is $11,250
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IRA Withholding Rules • Basic 10% Calculations
• Example 3: The IRA Accountholder requests a distribution of $4 500 net after• Example 3: The IRA Accountholder requests a distribution of $4,500 net after 10% withholding.
$4,500 divided by 90% (.9) = $5,000
The gross distribution amount is $5,000The net amount is $4,500
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IRA Withholding Rules • Basic 10% Calculations
• Example 4: The IRA Accountholder requests a distribution of $4 500 and• Example 4: The IRA Accountholder requests a distribution of $4,500 and request 100% withheld.
$The gross distribution amount is $4,500The net amount is $0
The 1099‐R is completed in this way
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IRA Withholding Rules • IRS Form 1099‐R
IRA Owner 4500.00
O l C t M th d4500.00
X
Only Correct Method
4500.00
1 or 7
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IRA Withholding Rules • 2008 IRS Form 1099‐R
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IRA Withholding Rules • 2009 IRS Form 1099‐R Format remains the same
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IRA Withholding Rules • IRS Form 1099‐R
• Box 4 – Federal income tax withheld• Box 4 – Federal income tax withheld
Example:IRA owner requests $10,000 from his traditional IRA withIRA owner requests $10,000 from his traditional IRA with Federal Income Tax Withholding of $2,000. The IRA Owner is age 50. The IRA custodian issues a check for $8,000
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IRA Withholding Rules • IRS Form 1099‐R
IRA Owner 10000.00
10000.00
X
2000.00
1
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IRA Withholding Rules • Incorrect IRS Form 1099‐R
IRA Owner 8000.00
8000.00
X
1
63
IRA Withholding Rules • Incorrect IRS Form 1099‐R
IRA Owner 2000.00
2000.00
X
2000.00
7
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IRA Withholding Rules • IRS Form 1099‐R
IRA Owner ‐ 2008Only Correct Method
10000.00Only Correct Method
10000.00
X
2000.00
1
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IRA Withholding Rules • IRS Form 1099‐R
IRA Owner‐2009Only Correct Method
10000.00Only Correct Method
X
2000.00
1
66
IRA Withholding Rules • Incorrect IRS Form 1099‐R
IRA Owner ‐ 2009 8000.00
I t
X
Incorrect
1
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IRA Withholding Rules • Incorrect IRS Form 1099‐R
IRA Owner 2000.00
I t
X
Incorrect
2000.00
7
68
IRA Withholding Rules • IRS Form 1099‐R
IRA OwnerOnly Correct Method
10000.00Only Correct Method
X
2000.00
1
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IRA Withholding Rules • IRS Form 1099‐R
IRA OwnerOnly Correct Method
10000.00Only Correct Method
X
10000.00
2000.00
1
70
IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year• Verify all amounts on Form 1099‐R• Form 945‐A• Calculate and Report Withholding • NEW IRS Form 945‐X
Adjusted Annual Return of Withholding Federal Income Tax
or Claim for Refund
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year• Verify all amounts on Form 1099‐R• Form 945‐A
• Calculate and Report Withholding• NEW IRS Form 945‐X
Basic informational data is completed
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year• Verify all amounts on Form 1099‐R• Form 945‐A
• Calculate and Report Withholding• NEW IRS Form 945‐X
Indicate type of ypadjustment
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year• Verify all amounts on Form 1099‐R• Form 945‐A
• Calculate and Report Withholding• NEW IRS Form 945‐X
Line 3 – Indicate Federal Income Tax withheld
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year• Verify all amounts on Form 1099‐R• Form 945‐A
• Calculate and Report Withholding• NEW IRS Form 945‐X
Line 4 – backup withholding should be ZERO for IRAs
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year• Verify all amounts on Form 1099‐R• Form 945‐A
• Calculate and Report Withholding• NEW IRS Form 945‐X
Line 5 – Total of Lines 4 plus 5 shouldLine 5 Total of Lines 4 plus 5 should be the same as line 3 for IRAs
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year• Verify all amounts on Form 1099‐R• Form 945‐A
• Calculate and Report Withholding• NEW IRS Form 945‐X
Page 2 must be completed –Informational data
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year• Verify all amounts on Form 1099‐R• Form 945‐A
• Calculate and Report Withholding• NEW IRS Form 945‐X
Line 6 – Indicate with an “X” if applicable
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year• Verify all amounts on Form 1099‐R• Form 945‐A
• Calculate and Report Withholding• NEW IRS Form 945‐X
Line 7 – A detailed explanation of adjustment/claim is required
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year• Verify all amounts on Form 1099‐R• Form 945‐A
• Calculate and Report Withholding• NEW IRS Form 945‐X
Financial Institution’s Preparer Completes, Signs and Dates
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IRA Withholding Rules • Reporting Requirements
• Annually IRS Form 945 is due by January 31 for previous year• Annually, IRS Form 945 is due by January 31 for previous year• Verify all amounts on Form 1099‐R• Form 945‐A
• Calculate and Report Withholding
Paid Preparer Completes, Signs and Dates if applicable
• NEW IRS Form 945‐X
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IRA Withholding Rules • Non‐resident alien withholding procedures
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IRA Withholding Rules • Non‐resident alien withholding procedures
• And certain resident aliens• And certain resident aliens
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IRA Withholding Rules • Non‐resident alien withholding procedures
• Usually 30% withholding is due (Recommended procedure)• Usually 30% withholding is due (Recommended procedure)
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IRA Withholding Rules • Non‐resident alien withholding procedures
• Usually 30% withholding is due (Recommended procedure)• Usually 30% withholding is due (Recommended procedure)• Could have tax treaty differing percentage
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IRA Withholding Rules • Non‐resident alien withholding procedures
• Usually 30% withholding is due (Recommended procedure)• Usually 30% withholding is due (Recommended procedure)• Could have tax treaty differing percentage
• IRS Form W‐8BEN or W‐8IMY is required
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IRA Withholding Rules • Non‐resident alien withholding procedures
• Usually 30% withholding is due (Recommended procedure)• Usually 30% withholding is due (Recommended procedure)• Could have tax treaty differing percentage• Special reporting using IRS Form 1042 series
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IRA Withholding Rules • Non‐resident alien withholding procedures
• Usually 30% withholding is due (Recommended procedure)• Usually 30% withholding is due (Recommended procedure)• Could have tax treaty differing percentage• Special reporting using IRS Form 1042 series• Rules apply to IRA Accountholders and IRA Beneficiaries
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IRA Withholding Rules • Non‐resident alien withholding procedures
• Usually 30% withholding is due (Recommended procedure)• Usually 30% withholding is due (Recommended procedure)• Could have tax treaty differing percentage• Special reporting using IRS Form 1042 series• Rules apply to IRA Accountholders and IRA Beneficiaries• IRS Form 1042‐S instead of 1099‐R
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IRA Withholding Rules • Non‐resident alien withholding procedures
• Usually 30% withholding is due (Recommended procedure)• Usually 30% withholding is due (Recommended procedure)• Could have tax treaty differing percentage• Special reporting using IRS Form 1042 series• IRS Form 1042‐T Transmittal not Form 1096
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IRA Withholding Rules • Non‐resident alien withholding procedures
• Usually 30% withholding is due (Recommended procedure)• Usually 30% withholding is due (Recommended procedure)• Could have tax treaty differing percentage• Special reporting using IRS Form 1042 series• IRS Form 1042‐T Transmittal not Form 1096• IRS Form 1042
Annual Summarynot Form 945
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IRA Withholding Rules • State withholding procedures may also apply
• Many states have similar withholding procedures• Many states have similar withholding procedures
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IRA Withholding Rules • Backup withholding does NOT apply to IRAs
• IRS FormW 9 can be used for SSN verification however• IRS Form W‐9 can be used for SSN verification however
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IRA Withholding Rules
call us at 800.346.3961 or
send an e mail to info@pension specialists comsend an e-mail to [email protected]
Copyright 2011 © Collin W. Fritz & Associates, Ltd. “The Pension Specialists”All rights reserved. No part of this presentation may be reproduced in any form and by any means
without prior written permission from Collin W. Fritz & Associates, Ltd.