Withholding and Reporting Rules Apply to IRA Payments to Unclaimed Property Fund (Rev. Rul. 2018-17)

IRA trustees must now withhold 10% of distributions made to a state’s unclaimed property fund. Specifically, trustees must start:

  • withholding 10% from IRA payments to a state unclaimed property fund; and
  • reporting the payments to the IRA owner.

The IRS has issued guidance under Rev. Rul. 2018-17.

IRA Payments to Unclaimed Property Funds

A trustee must withhold taxes from many traditional IRA distributions. However, the person who receives the distribution may elect to have nothing withheld, or elect what withholding rate to use. To make an election, the recipient fills out Form W-4P, Withholding Certificate for Pension and Annuity Payments, and gives it to the IRA trustee.

When an individual with an interest in an IRA does not make any withholding election, state law may require the trustee to pay the interest into an unclaimed property fund. The owner of the interest can then make a claim against the fund to recover the interest.

New Withholding and Reporting Rules

IRA trustees must now withhold 10% of any amounts they distribute to the state’s unclaimed property fund.

A trustee must also report the total amount of the distribution on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. In addition, the trustee must send this form to the person who owns the interest in the IRA.

Transition for IRA Withholding and Reporting

IRA trustees should comply with these withholding and reporting rules as soon as they can reasonably can. However, they must comply beginning on January 1, 2019.

Rev. Rul. 2018-17

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All stories by: CCHTaxGroup