IRS Federal Withholding disclosure
As of December 1, 2023, you can elect Federal and State tax withholdings on withdrawals from your M1 Traditional IRA(s), Roth IRA(s), and SEP IRA(s). Withholding is sent to the IRS and your state and is reported on your 1099-R tax form.
Please note: You may not have to pay federal or state taxes on Roth IRA distributions, but you can choose to withhold a percentage. Please consult your tax advisor.
Federal
The default withholding for Federal is 10% and can be changed regardless of state. Your income may be taxed at a higher rate. You can choose to withhold any percentage from 0% to 100%. The IRS provides information about marginal tax rates, updated each year. To learn more, please see IRS guidance on federal income tax rates and brackets.
State
Your state of residency determines the minimum amount of state taxes you’ll have to withhold for an IRA distribution. When you make a distribution, the state tax withholding requirement is based off the address associated with your M1 account. States have different withholding rules, explained below:
Voluntary: Allows state withholding to be elected and will only be taken if you instruct us to do so. If state withholding has been elected on your distribution and your state requires a minimum percentage, as listed in the table below, the withholding election must meet or exceed the minimum state requirement and must be entered as a percentage.
Mandatory: Requires the minimum state withholding, listed in the table below, on all distributions if the IRA owner has elected federal withholding. If the IRA owner waives federal withholding, they have two options:
They may waive state withholding as well OR
They may still elect state withholding, provided it meets the minimum state withholding requirements listed in the table below.
Withholding may not be elected: Cannot be elected for state withholding
Withholding match: Requires state withholding to match the election made for federal withholding. If federal withholding is elected, state withholding must be elected. If federal withholding is not elected, state withholding cannot be elected.
Mandatory opt out: Requires the minimum state withholding, listed in the ‘State Requirements Table’, on all distribution regardless of the IRA owner’s federal withholding option. However, these states allow IRA owners to opt out of state withholding if certain criteria apply. Each of these states provide a waiver, which is also listed in the table below. You can obtain your state’s form by contacting M1 or visiting your state’s tax agency website.
State | Withholding Option | Required Minimum | Opt-Out Required (if applicable) |
ALABAMA | Voluntary | No Minimum |
|
ALASKA | Withholding May Not Be Elected |
|
|
ARIZONA | Voluntary | 0.5% |
|
ARKANSAS – IRA DISTRIBUTIONS | Mandatory Opt Out | 3% | AR-4P |
CALIFORNIA* | Voluntary | 10% of Fed |
|
COLORADO | Voluntary | 4.40% |
|
CONNECTICUT* | Voluntary | No Minimum |
|
DELAWARE - IRA DISTRIBUTION | Voluntary | No Minimum |
|
FLORIDA | Withholding May Not Be Elected |
|
|
GEORGIA* | Voluntary | 5.19% |
|
HAWAII | Withholding May Not Be Elected |
|
|
IDAHO | Voluntary | 5.30% |
|
ILLINOIS | Voluntary | 4.95% |
|
INDIANA | Voluntary | No Minimum |
|
IOWA* | Mandatory Opt Out | 3.8% | IA W-4P |
KANSAS - IRA DISTRIBUTION | Voluntary | No Minimum |
|
KENTUCKY | Voluntary | 4% |
|
LOUISIANA | Voluntary | No Minimum |
|
MAINE | Mandatory | 5% |
|
MARYLAND | Voluntary | No Minimum |
|
MASSACHUSETTS | Mandatory | 5% |
|
MICHIGAN | Voluntary | 4.25% |
|
MINNESOTA | Mandatory Opt Out | 6.25% | W-4MNP |
MISSISSIPPI | Voluntary | No Minimum |
|
MISSOURI | Voluntary | 4.70% |
|
MONTANA | Voluntary | No Minimum |
|
NEBRASKA | Mandatory | 5% |
|
NEVADA | Withholding May Not Be Elected |
|
|
NEW HAMPSHIRE | Withholding May Not Be Elected |
|
|
NEW JERSEY | Voluntary | No Minimum |
|
NEW MEXICO | Voluntary | No Minimum |
|
NEW YORK | Withholding May Not Be Elected |
|
|
NORTH CAROLINA | Mandatory Opt Out | 4% | NC-4P |
NORTH DAKOTA | Voluntary | No Minimum |
|
OHIO | Voluntary | No Minimum |
|
OKLAHOMA | Mandatory Opt Out | 4.75% | OK-W-4-R |
OREGON | Mandatory Opt Out | 8% | OR-W-4 |
PENNSYLVANIA | Withholding May Not Be Elected |
|
|
RHODE ISLAND | Voluntary | No Minimum |
|
SOUTH CAROLINA | Voluntary | No Minimum |
|
SOUTH DAKOTA | Withholding May Not Be Elected |
|
|
TENNESSEE | Withholding May Not Be Elected |
|
|
TEXAS | Withholding May Not Be Elected |
|
|
UTAH* | Voluntary | 4.50% |
|
VERMONT* | Mandatory | 30% of Fed |
|
VIRGINIA | Voluntary | No Minimum |
|
WASHINGTON | Withholding May Not Be Elected |
|
|
WEST VIRGINIA | Voluntary | No Minimum |
|
WISCONSIN | Voluntary | No Minimum |
|
WYOMING | Withholding May Not Be Elected |
|
|
*Some states may have additional rules. Please contact us if you have questions.
Frequently asked questions
Why do I need to specify federal & state tax withholding for my IRA distribution?
IRA distributions can be taxable events. When requesting your distribution, you have the opportunity to withhold taxes at a federal and state level.
While you’re not required to elect federal withholding, some states may require state income tax to be withheld from your distribution. This withholding is held by our clearing firm, Apex, and sent to your state on your behalf. In the beginning of the following year, you’ll receive form 1099-R, reflecting the amount of federal and state tax withheld. Information shown on form 1099-R is also sent to the IRS and your state tax agency.
How much do I need to withhold?
You should consult with your tax advisor when determining how much to withhold. M1 does not provide tax advice.
When must I start entering these withholding amounts?
Withholding elections are required after December 1, 2023. This requires all distributions from Traditional IRAs, Roth IRAs, and SEP IRAs to meet state tax withholding requirements. As of December 1, 2023, any distributions that do not meet your state’s withholding requirements won’t be processed. You may not have to pay federal or state taxes on Roth IRA distributions, but you can choose to withhold a percentage. Please consult your tax advisor.
Where does the withholding cash go?
Apex Clearing is the custodian for M1 IRAs. Apex is required to send the money you decide to withhold for taxes to the IRS and state tax agencies. Please consult your tax advisor. We do not suggest or guarantee refunds.
Why can’t I set up a recurring withdrawal from my IRA?
Given this change, you are no longer able to set up a new recurring withdrawal from your Traditional IRA, Roth IRA, or SEP IRA. If you are looking to withdraw from your IRA, you can do so in a one time transfer.
M1 and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only. It is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.
Brokerage accounts on the M1 platform are either fully disclosed to APEX Clearing or cleared through M1 Finance LLC. Please look at your account statement to determine how your account is cleared.
All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future performance. Using margin can add to these risks. Users utilizing APEX cleared margin accounts should review the APEX margin account risk disclosure before borrowing. Users utilizing M1 cleared margin accounts should review the M1 margin account risk disclosure before borrowing. M1 Margin Loans are available on margin accounts with at least $2,000 invested per account. Not available for Retirement or Custodial accounts. Margin rates may vary.
Brokerage products and services are offered by M1 Finance LLC, Member FINRA / SIPC, and a wholly owned subsidiary of M1 Holdings, Inc.
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