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

Forum|Forum|2 years ago
October 20, 2023
3 replies
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Today I spoke with Fidelity to remind them to withhold state and federal taxes from my 401K savings plan RMD this year. (Last year they forgot to, so I had to make estimated tax payments to cover that.) Fidelity said I can no longer tell them to withhold 10% or a set dollar amount but must fill out the new W-4P per the IRS. And failing that, they will withhold the default amount (married, 3 deductions). I am single, no deductions. I next spoke with Morgan Stanley who issues my IRA RMD, and they said they were not aware of any new "law or rule" and that they plan to withhold 15% for state and 15% for federal as before. I read the IRS W-4P form instructions, and it seems to say that form is used for periodic pension payments or annuities. Are those the same as RMD's? I am thinking the W-4P is for my pension payments not my annual RMDs. Thanks.

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Anonymous_

Employee

I'll page @dmertz

VolvoGirl

Employee

Maybe you can log into your Fidelity 401K account and change it on there. I've done that with my IRA and 401K accounts. I think the 401K plans are lumped together with Pensions plans. They both go on 1040 line 5. Yeah what they told you doesn't sound right. I would call Fidelity again and get someone else.

cocoanutsAuthor

Thanks. I do not have an "issue" with filling out the W-4P form. I reviewed it, and it is simple with each of my entries being blank (not applicable) except for step 5 which is my signature. I spoke with two reps at Fidelity yesterday, and the second rep said I could call back to "update" my form within the next 7 days and that would work (versus completing the form, signing, scanning and returning}. My question goes to the correctness of their interpretation of the "new rule" and if it actually applies to RMDs.

dmertz

Employee

I don't think that the rule is new. I think that some plan administrators have been allowing alternative methods of specifying withholding and treating that equivalent to submitting a W4-P. However, I do believe that the IRS mandates the use of an actual Form W4-P to increase the default federal tax withholding and the IRS might simply be increasing enforcement of the requirement. (Because an RMD is ineligible for rollover, the default tax withholding is 10%.) There is likely a different but similar form for state tax withholding.

I suspect that the IRS mandates the use of the actual form because the form also includes the instructions which provide important information to the individual. The rules are different for IRA distributions where there is no IRS requirement to use a particular form.

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.

cocoanutsAuthor

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)."