
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: MONDAY, November 1, 1993                   TAG: 9311010012
SECTION: MONEY                    PAGE: A-10   EDITION: METRO 
SOURCE: 
DATELINE:                                 LENGTH: Short

REMEMBER THE 20 PERCENT RULE

It's been almost a year - since Jan. 1, to be exact - that the federal government has required employers and anyone else holding money in tax-deferred retirement accounts to withhold for income taxes 20 percent of any money paid to an employee, unless that money is transferred directly to the new employer's plan or to an individual retirement account.

Say you leave a job after saving $10,000 through the company 401(k) plan. If you take the money in a lump sum you would receive a check for $8,000, even if you intend to put the money into an IRA the very next day. The remaining 20 percent, or $2,000, would be sent to the Internal Revenue Service and applied to the federal tax you might have to pay in the year you received the distribution.

If you still want to put $10,000 into the IRA, you would have to come up with the additional $2,000 out of other funds. Months later, you could claim a refund for the amount withheld.

If you don't make up the 20 percent, that money is considered a "taxable distribution" from a retirement plan and will be taxed as if it were regular income. If you're under age 59 1/2, you might also be subject to a 10 percent early withdrawal tax on that distribution.

You can avoid all this hassle, and keep the money growing on a tax-deferred basis, by having the money transferred directly from your employer's retirement plan into a new plan or an IRA.

- Boston Globe

by CNB