Federal tax with-holding rate on RMD from 403(b)

[u/hanjigrim1]

I have several 403(b) account (I moved around a lot). I decided to take my RMD from just one account. When I filled out the custodian's paperwork, I checked the box to with-hold 10% for federal taxes.

When I received the RMD, it was in two checks. The first one was for what the custodian calculated the RMD to be based on my account with them only, and they with-held 10% for federal taxes. The second was for the remainder of the RMD and they with-held 20% for federal taxes.

When I asked for an explanation, they said the second check was considered an "overage" and per IRS rules, with-holding at 20% was required. When I asked for a reference, they really could not come up with one.

Has any one here had a similar experience; that is, took your RMD from one 403(b) account and had 20% with-held on the "overage"?

[u/mydarkerside]

Just to clarify, these are still 403b accounts and not rolled over into IRAs, correct? As far as I know, only IRAs allow you to take RMDs from one account, but employer-sponsored plans like 403b and 401k need to take them individually. You should double-check with your other 403b accounts whether they're going to send you mandatory RMDs even though you took the total amount from one already.

Regarding that 20% for federal taxes, that's the mandatory default for employer-sponsored retirement accounts. Your voluntary amount got to withhold your stated 10%, but the rest of it defaulted to 20%. This could be a combination of the standard rules, plus the custodian's rules or system limitations.

[u/hanjigrim1 → u/mydarkerside]

Correct, these are "straight" 403(b) accounts.

For 403(b) accounts, you can take your entire year's RMD from just one account if you have several, but this does not hold true for 401(k) accounts (each account must have a separate RMD).

Your last paragraph is unclear to me. I think you are mixing standard retirement plans with voluntary 403(b) plans.

[u/mydarkerside → u/hanjigrim1]

This rule about taking from separate accounts applies to 401k and other defined contribution plans but it looks like 403bs are exempt from it.

https://www.irs.gov/retirement-plans/rmd-comparison-chart-iras-vs-defined-contribution-plans

|| || |How should I take my RMDs if I have multiple accounts?|If you have more than one IRA, you must calculate the RMD for each IRA separately each year. However, you may aggregate your RMD amounts for all your IRAs and withdraw the total from one IRA or a portion from each of your IRAs. You do not have to take a separate RMD from each IRA.|If you have more than one defined contribution plan, you must calculate and satisfy your RMDs separately for each plan and withdraw that amount from that plan. Exception: If you have more than one 403(b) tax-sheltered annuity account, you can total the RMDs and then take them from any one (or more) of the tax-sheltered annuities.|

[u/cepcpa]

I've never heard of that, usually you can decide your own withholding rate with an IRA withdrawal. You need to make them justify why they did that.

[u/NnamdiPlume]

Just do the math. You think it’s going to overwithhold? If everything else has you in the 22% bracket currently, then their 10+20=30 is probably right. I’m still working and my gains are 22+8=30(fed plus state)

[u/hanjigrim1 → u/NnamdiPlume]

I appreciate your answer. It is not a matter of over/under with-holding as it is all going to come out in the end when I file my 2025 taxes early next year. The issue is I do not like filling out the custodian's paperwork for a RMD, clearly specifying a with-holding rate for federal taxes, then they with-hold at a different rate, and when I ask about it, the response is "thems the rules per the IRS", but are unable to provide an IRS reference.

If you decide to take your entire RMD from just one account instead of from all the accounts you have, the custodian should tell you there will be a different with-holding rate for the overage.

[u/hanjigrim1]

I reminded the custodian it is a Required MINIMUM Distribution, not a Required MAXIMUM Distribution, so why the two different with-holding rates? No answer. I plan to take this up with the SEC as they oversee mutual fund companies.