Expert: Allen - 6/1/2011

Question
I’m age 51. I’m now receiving my pension on a monthly basis; effective 6-1-2011, amount of $1,266.95.  This is a qualified pension plan.  I do not have a job or any other income, and will work at all this year.  Do I have to have federal tax withholding deducted from the monthly payments?  What distribution code should my former employer use on my 1099R tax form since I’m only 51 years old; am I subject to the 10% early withdrawal penalty?

Answer
The answers to your questions are:

1. If you do not make a tax withholding election, the trustee will withhold 10% for federal income tax. However, you can elect a different amount including no withholding. If you believe you will not be liable for income tax, you can choose to have nothing withheld. You can change your election at any time.

2. Under most circumstances, the 10% early withdrawal penalty will not apply to this type of distribution.

3. I do not know the distribution code since I do not get involved with preparing 1099R forms. However, the trustee will know what code to enter. If you want to find out the correct code, go to the IRS website and pull up the instructions for the form.