"The Pension Specialists" Blog

Email Guidance – Why Furnish a Withholding Reminder Notice?

Q-1 We have been sending out form 59-B Withholding Elections for Automatic IRA distributions. We have been sending them out twice a year (lately in March and Sept). Is it still necessary to send this out twice a year? If so does it have to be six months apart?

A-1 To whom are you sending your two withholding reminder notices? Are both notices going to the same customers? We suggest not furnishing the same notice to the same people. But sometimes you may have to. The purpose of the IRS’ withholding notice rule is, each year a person should have the right to change their withholding instruction for the upcoming distributions. In January you should furnish the notice to those IRA owners receiving more than 4 distributions per year or who receive 1-2 distributions and one of those distributions is between January 1 and June 30th.

The IRS has adopted a complicating procedure. Only one notice needs to be sent to someone receiving periodic distributions 4 or more time per year. However, if a person is to receive less than 4 distributions per year, than the IRS requires two notices because the when there are fewer than 4 distributions the IRS requires that the notice cannot be furnished more than 6 months in advance of any distribution. This why you are furnishing at least 2 notices.

So, if you have IRA owners only receiving one distribution in October or November, I see little purpose to sending these IRA owners the withholding notice in January or February as you must comply with the 6 month rule and you must comply with the requirement that the person must have a reasonable time to notify you (30 days) that they are changing their prior instruction.

One would think if the federal government is trying to reduce unnecessary rules, the IRS could change its rule and get rid of the 6 month rule and allow the notice to be furnished in January. We will be suggesting it to the IRS one more time, but it would require the IRS to amend its regulation and there is work to be done which the IRS may not want to do.