RETIREMENT BOARD | EMPLOYEE RETIREMENT SYSTEM
Providence City Hall | 25 Dorrance Street, Room 409, Providence, Rhode Island 02903
401 421 7740 ph | 401 453 6175 fax
www.providenceri.com
lNCOME TAX WITHOLDING
Mandatory Withholding
If the distribution made payable to you has a taxable portion, the Retirement System is required under
IRS rules to withhold twenty percent (20%) of the distribution amount if it exceeds two hundred dollars
($200.00). However, the Retirement System elects to withhold twenty percent (20%) of each distribution,
irrespective of the amount. Such twenty percent (20%) is sent to the lRS as an income tax withholding.
For example: If your taxable distribution is three thousand dollars ($3,000.00), then two thousand four
hundred dollars ($2,400.00) will be distributed to you and the Retirement System will send six hundred
dollars ($600.00) to the IRS. However, when you prepare your income tax return for the year, you will
report the entire three thousand dollars ($3,000.00) as a payment from the Retirement System. You will
report six hundred dollars ($600.00) as withheld taxes, and it will be credited against any income tax you
may owe for that year.
Sixty Day Rollover Option
If you have an eligible rollover distribution paid to you, you can still decide to roll over all or part of the
taxable amount to an IRA or another plan that accepts rollovers. If you decide to roll over, you must
make the rollover within sixty (60) days after you receive the payment. The taxable portion of your
payment that is rolled over will not be taxed until that portion is distributed to you.
You can rollover up to one hundred percent (100%) of the taxable portion of your distribution, including an
amount equal to the twenty percent (20%) that was withheld. If you choose to roll over one hundred
percent (100%) of your distribution you must find other money, within the following sixty (60) days of the
direct rollover date, to contribute to the IRA or employer plan to replace the twenty (20%) tax withholding.
If you roll over only the eighty percent (80%) of your distribution that you received, the remaining twenty
percent (20%) will be forwarded to the IRS as a tax withholding.
For example: If your taxable distribution is three thousand dollars ($3,000.00), you will receive two
thousand four hundred dollars ($2,400.00) and the remaining six hundred dollars ($600.00) will be sent to
the IRS as income tax withholding. Within sixty (60) days after receiving the two thousand four hundred
dollars ($2,400.00), you may roll over the entire three thousand dollars ($3,000.00) to an IRA or employer
plan. To do this, you roll over the two thousand four hundred dollars ($2,400.00) you received from the
Retirement System and find six hundred dollars ($600.00) from other sources (such as your savings, a
loan, etc.) to include with your rolled over amount. In this instance, the entire three thousand dollars
($3,000.00) is not taxed until you later receive it from the IRA or employer plan. If you roll over the entire
three thousand dollars ($3,000.00), upon filing your income tax return, you may get a refund of the six
hundred dollars ($600.00) withheld as income taxes.
If, you choose to roll over only the two thousand four hundred dollars ($2,400.00), the six hundred dollars
($600.00) you did not roll over is taxed in the same year that it was withheld as income taxes.
Additional 10% Tax If You Are Under 59½
If you receive a distribution from the Retirement System before you reach age 59½ and you do not roll it
over, then you may be required to pay an additional income tax equal to ten percent (10%) of the taxable
portion of the payment. The additional ten percent (10%) tax does not apply to your distribution if it is: (1)
paid to you because you separate from service during or after the year you reach age fifty-five (55); (2)
paid because you retire due to disability; or (3) used to pay certain medical expenses. (See IRS Form
5329 for more information on the additional ten percent (10%) tax.)
