Reply To: Excess Contribution to 2019 Roth IRA

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#5296
DABU1989
Participant

Alan: Thanks for your reply and also for the clarification. You are correct about IRA default withholding rate. Schwab is required to withhold 10% from your gross distribution for payment of federal income tax unless you choose not to have federal income tax withheld. I will go with 10% for federal and about state, Schwab will do computation based on our mailing address. In addition, there will be 10% penalty on earnings. Since it is ROTH IRA, our “contribution” will not be taxed.

You also suggest “Suggest you specifically decline state as well as federal withholding.” Please look at the following info from Schwab. It is confusing. Should I mention 10% for option 2? Please clarify. Have a good weekend. With best wishes, Dabu.

“Federal Income Tax Withholding: Schwab is required to withhold 10% from your gross distribution for payment of federal income tax unless you choose not to have federal income tax withheld. You may elect not to have withholding apply to your distribution by selecting the option below and signing and dating this form. If you elect not to have withholding apply to your distribution, or if you do not have enough tax withheld, you may be responsible for payment of estimated taxes. You may also incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient.
Choose one:
1) I do not want federal income tax withheld.
2) I want federal income tax withheld at the rate of ______________%. (Federal tax withholding must be a whole number, at least 10%, and not more than Percentage 99% when combined with state income tax withholding.)