Citi Benefits Handbook
Special Withholding Rules
Unless you elect a direct rollover through a direct transfer of your distribution into an IRA or an eligible employer plan that will accept the transferred amount, the Code generally requires that federal income tax be withheld equal to 20% of the taxable portion of the distribution. This withholding applies to withdrawals from the Plan you may make during employment (except for hardship withdrawals) as well as distributions after termination of employment.
If you do not elect a direct rollover, you are still permitted to roll over the distribution you receive into an IRA or an eligible employer plan if you do so within 60 days of the date you receive the distribution. However, if you elect this rollover option, 20% withholding will still apply on the taxable amount (which you may later recover as a refund when you file your income tax return for the year of the distribution). The only way to avoid this federal income tax withholding at distribution is to elect the direct rollover option.
If your surviving spouse is entitled to receive an eligible distribution due to your death, he or she can also authorize a rollover of your Plan balance into an IRA or an eligible employer plan. Non-spouse beneficiaries may also roll over an eligible distribution to an IRA or Roth IRA only. Effective January 1, 2010, nonspousal beneficiary payments eligible to be rolled over into an IRA or Roth IRA are subjected to the mandatory 20% federal income tax withholding if not rolled over.
Regardless of the amount of federal income tax withheld at distribution, you will be responsible for paying any taxes associated with the distribution including any amount that exceeds the amount withheld, as well as any state or local taxes that may apply.