Question

An individual participant personally received eligible rollover funds from a profit-sharing plan. What is the income tax withholding requirements for this transaction? a) 10% withholding is required

b) 20% withholding is required
c) No withholding is required
d) The withholding is at the discretion of the individual

Answer 1

The income tax withholding requirements for an individual who received eligible rollover funds from a profit-sharing plan typically involve a 20% withholding, but if the funds are directly rolled over into another eligible retirement account, no withholding is required.

Step-by-step explanation:

The income tax withholding requirements for an individual participant who personally received eligible rollover funds from a profit-sharing plan depend on the specific circumstances. In most cases, a 20% withholding is required when eligible rollover funds are distributed directly to the participant. This means that 20% of the distribution amount is withheld for income taxes and sent to the Internal Revenue Service (IRS) on behalf of the participant. However, it is important to note that if the participant completes a direct rollover of the funds into another eligible retirement account within the required time frame, no withholding is required.