IRA Tax Withholding Rules for Traditional and Roth IRAs

Federal tax withholding on IRA distributions follows one of two defaults: recurring payments are withheld like a paycheck based on your filing status, and one-time withdrawals from a traditional IRA have 10% withheld automatically. You can raise that rate, lower it, or opt out entirely by filing Form W-4P for periodic payments or Form W-4R for one-time distributions with your IRA custodian. The IRA tax withholding rules split cleanly along that line, and picking the right form for the right kind of distribution is where most of the trouble starts.

The Two Default Rates

Traditional, SEP, and SIMPLE IRAs all hold pre-tax money, so distributions are taxed as ordinary income in the year you receive them.¹ Federal law splits those distributions into two categories for withholding, and each category has its own default and its own form.²

Periodic Payments

Periodic payments are recurring distributions paid over more than one year: annuity installments, scheduled monthly withdrawals, that kind of thing. Your custodian withholds from these the same way an employer withholds from wages, using the IRS tax tables and any adjustments you specify on Form W-4P.²

If you never submit a W-4P, the custodian defaults to withholding as if you filed as single with no other adjustments. That replaced the old “married with three allowances” default in 2022.³ For many married retirees this default overwithholds. For single filers with substantial other income it can underwithhold. Either way, the default is a guess.

Nonperiodic Distributions

Everything else is nonperiodic: lump sums, one-time cash-outs, on-demand withdrawals. The default here is a flat 10% of the taxable amount.⁴ That 10% is a starting point, not a floor or a ceiling. You can request higher, lower, or zero using Form W-4R.

The gap between 10% and what you actually owe can be big. A $50,000 lump-sum withdrawal that pushes you into the 22% or 24% bracket leaves the $5,000 withheld covering less than half your federal liability on that distribution. That is where underpayment penalties start showing up for people who did not plan.

Every distribution shows up on Form 1099-R, gross amount in Box 1 and federal tax withheld in Box 4.⁵ Keep it for your return.

Changing Your Withholding Rate

You control your withholding through two IRS forms. The IRS split the old single-form system into two starting in 2022, and using the wrong one is a common mistake because many custodians still do not explain the split well.

Form W-4P for Recurring Payments

Form W-4P covers only recurring payments like annuity installments. You specify your filing status, claim credits or deductions that affect the calculation, and optionally add a flat dollar amount to each payment.⁶ There is also a box to elect zero withholding.³ Your election stays in effect until you revoke or change it.²

Form W-4R for One-Time Distributions

Form W-4R is the form for lump-sum or on-demand withdrawals. On line 2 you enter the withholding rate you want, anywhere from 0% to 100%.⁷ To have nothing withheld, enter “-0-“. Skip the form and the custodian withholds the default 10%.⁴

Each W-4R election applies to that single distribution unless your custodian’s plan lets you set a standing election for future withdrawals from the same account.² Ask your custodian whether you need a fresh W-4R each time.

When 10% Is Not Enough

If your IRA distribution is your only real income, the default rates may land close enough. If you have Social Security, a pension, rental income, or part-time work stacking on top, 10% on a lump sum almost certainly falls short. Bumping withholding to 15%, 20%, or 25% on the W-4R keeps you from scrambling in April. The money was going to the IRS either way; the question is timing.

Opting Out Completely

Zero withholding means you receive the full gross amount, but the distribution is still fully taxable. You cover the tax through wage withholding from a job, quarterly estimated payments, or a lump sum at filing. If you have already covered your annual liability through other channels, opting out makes sense. If you are guessing, it usually does not.

The Rollover Withholding Trap

How the money travels between accounts determines what gets withheld. A direct trustee-to-trustee transfer avoids withholding entirely. When the custodian cuts the check to you first, withholding kicks in before the money reaches your hand, and getting whole again is harder than most people expect.

IRA to IRA

If your IRA custodian sends you a distribution you intend to roll into another IRA, the custodian withholds 10% unless you elected out beforehand.⁸ You then have 60 days to deposit the full original amount in the new IRA. The catch: you must replace the withheld portion out of pocket. On a $50,000 rollover with $5,000 withheld, you receive $45,000 and need $5,000 of your own money to deposit the full $50,000 within 60 days.

Deposit only the $45,000 and the IRS treats the missing $5,000 as a taxable distribution. You owe income tax on it and, if you are under 59½, another 10% early withdrawal penalty on top. You will eventually get the withheld $5,000 back as a credit on your return, but the damage is done. A direct trustee-to-trustee transfer sidesteps the whole problem.⁸

Employer Plan to IRA

Rolling money from a 401(k) or other employer plan into an IRA through an indirect rollover is worse. The plan administrator must withhold 20%, and that withholding is truly mandatory. You cannot opt out or reduce it.² On a $100,000 distribution, $20,000 stays with the IRS and you get $80,000. To complete the rollover tax-free, you need to deposit $100,000 in the IRA within 60 days, meaning $20,000 has to come from savings. A direct rollover avoids it.

Roth IRAs Work Differently

Roth IRAs are funded with after-tax dollars, so withholding almost never comes into play. A Roth distribution is qualified, and therefore completely tax-free with no withholding, when you have held any Roth IRA for at least five tax years and you are either 59½ or older, disabled, or using up to $10,000 for a first home purchase.⁹¹⁰

If the distribution is non-qualified, the IRS uses ordering rules to figure out what came out first: regular contributions, then conversion amounts (first in, first out), then earnings.⁹ Federal withholding applies only to the taxable earnings portion. Since most non-qualified withdrawals draw from contributions long before reaching earnings, many still have zero withholding in practice. Tracking your contribution basis is on you, not your custodian, and you report it on Form 8606 when you file.¹¹

Using RMD Withholding as a Tax Strategy

Once you turn 73, you must begin taking required minimum distributions from traditional, SEP, and SIMPLE IRAs each year. Your first RMD is due by April 1 of the year after you turn 73; every subsequent RMD is due by December 31.¹² Roth IRAs have no RMDs during the owner’s lifetime.

Withholding on an RMD is a lever, not just a mechanic. Many retirees use their RMD as their entire estimated-tax payment for the year by requesting heavy withholding on that one distribution. Withholding from retirement distributions is treated as paid evenly across the year regardless of when the distribution actually happens, so a December RMD with high withholding satisfies all four quarterly deadlines at once. It is one of the cleanest ways to avoid underpayment penalties without mailing vouchers.

Missing an RMD carries a 25% penalty on the amount you should have withdrawn but did not. Correct the shortfall within two years and the penalty drops to 10%.¹³ That penalty is separate from any income tax on the distribution.

The Early Withdrawal Penalty Is Not Withholding

People routinely confuse tax withholding with the 10% early withdrawal penalty. They are different things. Withholding is a prepayment toward your income tax bill. The early withdrawal penalty is an additional 10% tax on top of regular income tax when you take money from a traditional IRA before age 59½.¹⁴ The default 10% withholding does not cover the penalty. If you are in the 22% bracket and take an early distribution, you owe 22% income tax plus the 10% penalty. Total: 32%. The 10% withheld covers barely a third.

For SIMPLE IRAs the penalty jumps to 25% if you withdraw within the first two years of participating in the plan. Several exceptions eliminate the additional 10%, including disability, death, substantially equal periodic payments, unreimbursed medical expenses above 7.5% of AGI, health insurance premiums while unemployed for at least 12 weeks, qualified higher education expenses, a first-time home purchase up to $10,000, an IRS levy on the account, qualified birth or adoption expenses up to $5,000 per child, and federally declared disasters up to $22,000.¹⁵ When an exception applies, the distribution is still taxable income and the default withholding still runs. The exception removes only the extra penalty.

Qualified Charitable Distributions Skip Withholding

If you are 70½ or older, you can send up to $111,000 directly from your traditional IRA to a qualifying charity in 2026 through a qualified charitable distribution.¹⁶ The distribution is not included in your gross income, and because it is not taxable, no federal withholding applies.¹⁷ The transfer must go directly from your IRA custodian to the charity. If the custodian sends the check to you first and you forward it yourself, it is treated as a regular distribution with standard withholding, and the tax exclusion is lost. QCDs also count toward your RMD for the year.

State Withholding Runs on Its Own Track

State income tax withholding operates independently of the federal system. Nine states impose no income tax, so IRA distributions face zero state withholding there. Among states that do tax income, rules generally fall into three camps: states that mandate withholding on retirement distributions at a fixed rate unless you opt out, states that allow voluntary withholding on request, and states that follow the federal election automatically. Many states also offer partial or full exemptions for retirement income tied to age or dollar limits, so a fully federally taxable distribution may be partly or entirely exempt at the state level. The form for adjusting state withholding is separate from the W-4P or W-4R, and your custodian may not prompt you to file one. Check with your state department of revenue.

Staying Ahead of the Underpayment Penalty

The IRS expects you to pay taxes as income comes in, not in one April check. If your combined withholding and estimated payments fall short, the IRS charges an underpayment penalty calculated at the current interest rate.¹⁸ You avoid the penalty entirely if you meet any of these:

You owe less than $1,000 after subtracting withholding and refundable credits.¹⁹
You paid at least 90% of the current year’s tax through withholding and estimated payments.¹⁸
You paid at least 100% of last year’s total tax. That threshold rises to 110% if your AGI exceeded $150,000 in the prior year.¹⁸

The prior-year safe harbor is the easiest because it does not require predicting current income. If your tax last year was $12,000 and your AGI was under $150,000, you just need $12,000 in combined withholding and estimated payments to reach the IRS this year.

If your IRA withholding alone will not clear a safe harbor, make up the difference with quarterly estimated payments using Form 1040-ES. The 2026 due dates are April 15, June 15, and September 15, 2026, plus January 15, 2027.²⁰ The January payment is not required if you file your return and pay the remaining balance by February 1.

The IRS may also waive the penalty if you retired after reaching age 62 or became disabled during the tax year or the prior year and the underpayment was due to reasonable cause rather than neglect. Request the waiver by filing Form 2210 with your return and attaching documentation of your retirement date and age.²¹

1
Internal Revenue Service. Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs)
2
Office of the Law Revision Counsel. 26 USC 3405 – Special Rules for Pensions, Annuities, and Certain Other Deferred Income
3
Internal Revenue Service. Form W-4P (2026) Withholding Certificate for Periodic Pension or Annuity Payments
4
Internal Revenue Service. Pensions and Annuity Withholding
5
Internal Revenue Service. About Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
6
Internal Revenue Service. About Form W-4P, Withholding Certificate for Periodic Pension or Annuity Payments
7
Internal Revenue Service. Form W-4R (2026) Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions
8
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
9
eCFR. 26 CFR 1.408A-6 – Distributions
10
Internal Revenue Service. Roth IRAs
11
Internal Revenue Service. Instructions for Form 8606
12
Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)
13
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
14
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
15
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
16
Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs, as Adjusted for Changes in Cost-of-Living Notice 2025-67
17
Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts
18
Office of the Law Revision Counsel. 26 USC 6654 – Failure by Individual to Pay Estimated Income Tax
19
Internal Revenue Service. Topic No. 306, Penalty for Underpayment of Estimated Tax
20
Internal Revenue Service. 2026 Form 1040-ES Estimated Tax for Individuals
21
Internal Revenue Service. Instructions for Form 2210