I made an early withdrawal of $25,000 from an annuity account [no surrender fees] and, at the time, it was my understanding (based on conversations with the financial rep) that the taxes would be withheld by the financial firm when I got my check. I thought the firm was going to withhold 30% of the $25,000 amount: 10% for the early withdrawal penalty, and 20% for federal/state taxes.

When I got the check, I saw that the firm only withheld 10%. This means I'm going to have to come up with over $5000 in taxes in April. I fully intended to pay the tax but the whole point was that it would come out of the annuity account when they withheld it. I don't have the cash to pay it out of pocket, but I have money in my annuity that I wanted to be withheld for this purpose.

There is an IRS W-4P form, in which you indicate what percentage you want withheld from your annuity payments--the default is 10%, which is why they withheld 10%. The financial rep should have sent me this form (since she knew I wanted to withhold more) and had me indicate a higher amount, but she didn't. So my question is: Can I submit this form now to the firm, and essentially have them set aside more money for my taxes (the amount that should have been withheld to begin with)? Or does there actually need to be a withdrawal made (after the form is submitted) for it to take effect.

Also, if the answer is that there does need to be a withdrawal, can I just make a small withdrawal ($100), and have the payor withhold $5000 (or whatever amount I determine is necessary to cover the taxes on that $25,000 withdrawal)?

  • 1
    I answered and then deleted because the OP has additional information not in the original question. (Suggest johnnyb1970 edit the question to include that info since comments on my answer are now also gone.) My take is that, with the additional information, this is a customer service issue with the annuity firm. I have no help there - Maybe someone else will have a different perspective though.
    – user32479
    Nov 18, 2015 at 20:18
  • So you received the "tax" money instead. Why can't you park it in a savings account or somewhere else until you file your taxes?
    – mkennedy
    Nov 19, 2015 at 0:05
  • I received $25,000, which I needed to pay off my credit card. I used all that money; that was the whole purpose of my withdrawing it.
    – jevron1984
    Nov 19, 2015 at 13:45
  • I'm afraid I'm still confused. Were you trying to receive a net amount of 25k, so you actually withdrew more but wanted the company to set 30% aside? Or you asked for 25k, but wanted the company to set even more aside for the taxes? Otherwise, you should have realized that you would net only $16500 and everything else was for taxes. Revise your budget now or you'll be charging your taxes to a credit card in April.
    – mkennedy
    Nov 19, 2015 at 18:38


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