How are distributions from a qualified retirement plan taxed to a participant?
Distributions from a qualified retirement plan that are not taken as a direct rollover to an IRA or another qualified retirement plan are subject to 20% federal tax withholding. Hence, the participant will only receive 80% of the total benefit. Distributions taken as a direct rollover would not be subject to the 20% federal tax withholding, and would not be subject to taxation until subsequently withdrawn from an IRA or qualified retirement plan.
