Expert: Allen - 3/1/2009

Question
Hi,
I'm planning to start receiving my pension funds that have accumlated from 1978 to 1997. The paperwork came in the mail the other day. At this time, I have been terminated from  my job (at an auto parts supplier) as of 11/08 (after 30 yrs) and the extra funds will come in handy. In my paperwork there is a form to have federal witholding tax taken out if I so chose to do so. I'll only be receiving $125.00(approx)per month as my pension. Is it necessary to have the federal tax taken out. I live in Michigan and am not clear on the tax laws. Thank you for your help,
   F(age53)

Answer
It's not necessary to have taxes withheld. However, the pension will be considered taxable income and will be subject to income tax. It's therefore a good idea to have federal and state taxes withheld. Unfortunately, I can't tell you how much. The amount of tax will be determined by your total taxable income from all sources. If you have too much withheld, it will be refunded next year.

One thought. Go with 20% for federal tax and 5% for state tax.