How does tax withholding work on withdrawals?

Does Betterment withhold taxes when I withdraw from my account?

When you withdraw from a 401(k) or IRA account, Betterment automatically sets a default tax withholding of 10% for federal taxes. This amount is submitted to the IRS on your behalf to help you avoid an unexpected tax bill.

Can I change the withholding amount?

Before submitting your withdrawal request, you can edit the withholding amount in the designated field. If you prefer not to withhold any taxes, you can set the amount to 0%.

Does Betterment withhold taxes on taxable investment account withdrawals?

Betterment does not automatically withhold taxes on withdrawals from taxable investment accounts (such as individual or joint investing accounts). You are responsible for managing any tax liability when filing your return.

However, before submitting your withdrawal request, you'll see a tax impact preview with an estimate of potential taxes owed when you file.

Why does Betterment withhold taxes on 401(k) and IRA distributions?

Withholding taxes upfront may help you avoid a large tax bill in April. However, the final amount you owe depends on your total income, deductions, and tax situation.

When do I set my withholding preference?

You’ll see the withholding field before submitting your withdrawal request, giving you the option to adjust the percentage as needed.