Rev. Rul. 2019-19 Further Affirms the Required Federal Tax Withholding on 401k Distributions

In case there was any doubt, a recent revenue ruling (Rev. Rul. 2019-19) confirms the mandatory 20% federal tax applies to qualified plan distributions (e.g., full-time employer 401k plans as well as solo 401k plans).

Summary of the Ruling

This ruling provides that an individual receives a distribution check from a qualified plan and does not to cash the check.  The revenue ruling concludes that the individual’s failure to cash the check does not permit the individual to exclude the amount of the designated distribution from gross income under § 402(a) and does not alter the employer’s withholding obligations under § 3405 or Form 1099-R reporting obligations under § 6047(d).

The Ruling Essentially Concludes the Following

  • The check amount is taxable in the year received by the recipient, whether cashed or not.
  • Just because the distribution check is not cashed does not mean the the solo 401k trustee can skip the mandatory 20% federal tax withholding that applies at time of the solo 401k distribution.
  • If the distribution check is not cashed, the solo 401k trustee is still required to report the distribution on IRS Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. (reporting is required for distributions of $10 or more).

Certain Rules Apply to Distributions From 401k Plans Including Solo 401k Plans

While distributions may be made from 401k plans including owner-only retirements plans such as solo 401k plans, triggering events (e.g. attainment of certain age and no longer employed), federal tax withholding and reporting applies. To learn about the solo 401k distribution rules including how to submit the mandatory federal taxes to the Department of the Treasury, VISIT HERE.

About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>


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