Person, age 71, requests $40,000 distribution from IRA account with $2,000 federal withholding. He is told that if he wants to have withholding, he must have at least 10% - or $4,000 - withheld. His projected tax liabililty is $2,000. He is not required to have any withholding but if he chooses to have withholding it must be at least 10%.

Can anyone address why there should be such a rule - or even if the above rule is true.

No withholding is required from an IRA distribution. Withholding at a flat rate of 10% is used for "nonperiodic distributions." Many custodians will withhold more than 10% if requested.

Maybe the individual should take 2 distributions, $20,000 with 10% withholding and a couple of days later the balance with no withholding. Sometimes it's easier to break down the problem so the custodian can fit it into their prescribed forms.

IRA distributions are subject 10% voluntary withholding-- if the retiree elects withholding can be waived. The retiree can elect 0% withholding and make an estimated tax payment of $2,000 on Jan 15th. The retire can also elect 5% withholding.

Actually, the IRA holder may NOT request a 5 % withholding ( well he/she can , but any IRA custodian who knows the rules will not withhold less than 10 %, unless the amount is zero).

Had the distribution been a periodic distribution, then the withholding could be 5%. A distribution from an IRA is a non-periodic distribution (i.e. available on demand). The IRS requirement is that the withholding for a non-periodic distribution be zero or > 10%.

I agree with Appleby.

IRS Form W4P. Bottom right-hand corner of page 3 states:

"Nonperiodic payments—10% withholding.

Your payer must withhold a flat 10% from nonperiodic payments unless you choose not to have income tax withheld.

Distributions from an IRA that are payable on demand are treated as nonperiodic payments. You can choose not to have income tax withheld from a nonperiodic payment by submitting Form W-4P (containing your correct TIN) to your payer and checking the box on line 1. .... you may use line 3 to specify an additional amount you want withheld."