NYCE IRA & Tax Withholding

The New York City Employee IRA (NYCE IRA) certainly does not make it easy when electing federal taxes to be withheld from a distribution.  Based on the distribution form there are essentially two choices; 10% federal tax withholding or no federal tax withholding.  If the NYCE IRA participant wants withholding greater than 10%; an IRS W-4P form must accompany the distribution request.  This does not any sense.  Completing the W-4P will only confuse the participant and may result in not enough taxes being withheld.  Many, if not all, IRA custodians (Schwab, Fidelity, Vanguard, etc.) simply allow the participant to enter the desired federal tax withholding as a percentage directly on the distribution form without using a W-4P.

Note: The statement under the heading “New York State and New York City Tax Exemption” on pg. 14 of the NYCE IRA Brochure is not accurate.  Distributions from an IRA do not have to be periodic to be eligible for the exception.