How to Estimate Retirement Tax Withholding

If you take a withdrawal from your retirement plan, the total amount you receive will be reduced by tax withholding unless you roll over the money into an individual retirement account or another type of qualified plan. Federal tax withholding of 20 percent is mandatory, and you can elect to have another 2 percent taken out for state tax withholding. You can still execute a rollover within 60 days to avoid paying taxes on the distribution amount, but you will not receive a refund of your withholding until you file your personal income tax return the next year.

Step 1

Tally the gross amount of your withdrawal. Subtract any funds that were directly rolled over to another IRA or qualified retirement plan. Subtract any portion of the withdrawal that is derived from a Roth plan, as these are funded by after-tax contributions.

Step 2

Multiply the result from Step 1 by 20 percent to determine your federal tax withholding. Multiply the result by 2 percent to figure your state tax if you have elected to have state tax withheld from your distribution.

Step 3

Add together the federal and state tax withholding from Step 2 to get your total tax withholding. Subtract this amount from your gross withdrawal to find out how much money you should expect to receive.

Warning

  • If you are younger than 59 1/2 years old at the time of your withdrawal, you will also have to pay a 10 percent early withdrawal penalty when you file your taxes. This money is not withheld from your distribution, so plan your budget accordingly.

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