Updated October 7, 2026. Quick answer: Yes, 7.75%, on a 401(k) or other plan payout paid to you when federal withholding is mandatory; otherwise only if you ask. Maryland law says that when an eligible rollover distribution is paid to a resident and “the payment is subject to mandatory withholding of federal income tax, the payor shall withhold from the payment an amount equal to 7.75% of the payment”. Any other Maryland withholding is the amount the payee requests on Form MW507P.
Drawing a pension? Whether the state withholds tax from it, from its own documents: Maryland tax withholding on pension payments.
Maryland withholding at a glance
| Item | What the documents say |
|---|---|
| Is it required? | Yes, 7.75%, on an eligible rollover distribution that is subject to mandatory federal withholding; otherwise the payor withholds what the payee requests on Form MW507P |
| Rate or amount | 7.75% of the payment on an eligible rollover distribution with mandatory federal withholding; on a request, a whole-dollar amount per payment, not less than $5 a month for annuities and retirement distributions |
| How to start or stop it | File Form MW507P with the payer; terminate it any time by written notice to the payer |
| Direct rollover | The 7.75% applies only when the payment is subject to mandatory federal withholding, which the IRS says does not apply in a direct rollover |
| Changed for 2026? | No change stated; the form read is edition COM/RAD 044 05/23 |
What the Maryland documents say
The statute, Tax-General Article section 10-908, has the payor “withhold the amount from an annuity, sick pay, or retirement distribution” that the payee requests. Subsection (f) adds a mandatory rule: if a payment to a resident is an eligible rollover distribution and “the payment is subject to mandatory withholding of federal income tax, the payor shall withhold from the payment an amount equal to 7.75% of the payment”. The Comptroller’s Form MW507P cites “Section 10-907(b) of the Tax-General Article” and sets the limits on a request.
On the form’s limits: “the annuity must be payable over a period longer than one year”, so a single lump-sum withdrawal is not what it is built for. The amount you request cannot be “less than $5 a month for annuities and retirement distributions”. The form also lets you “terminate at any time your request for voluntary withholding”.
A $50,000 withdrawal: cash in hand or a direct rollover
Take a $50,000 401(k) withdrawal paid to you as a lump sum. The IRS says a taxable eligible rollover distribution paid to you from an employer plan is subject to “mandatory income tax withholding (generally at a rate of 20%)”, which on $50,000 is $10,000 (computed as $50,000 times 20%) held back for federal tax. Maryland adds its own mandatory withholding on that payment: section 10-908(f) requires 7.75% of an eligible rollover distribution that is subject to mandatory federal withholding, which on $50,000 is $3,875 (computed as $50,000 times 7.75%). Form MW507P, a request for a whole-dollar amount on an annuity payable over a period longer than one year, is not what sets this amount.
The other path is a direct rollover to an IRA or another plan. For federal tax the IRS says “The mandatory withholding doesn’t apply in a direct rollover”. Maryland’s 7.75% applies only when the payment is subject to mandatory federal withholding, so a direct rollover, which the IRS says is outside that withholding, does not trigger it; confirm with the payer before choosing.
What a mover should know
This page is about Maryland as a state of residence. An instruction line written for a nonresident or part-year filer is not the rule for a resident, and none of the documents read settles a part-year or two-state case, so check each state’s own rule. The federal side is the same everywhere; CMG’s federal 20% withholding on a pension lump sum page covers it.
What the documents do not say
- The documents read state no change for 2026. The form read is the COM/RAD 044 05/23 edition.
Common mistakes
- Assuming a 401(k) payout paid to you carries no Maryland withholding; the statute requires 7.75% when federal withholding is mandatory.
- Using Form MW507P to set withholding on a one-time lump sum; the form’s condition is an annuity payable over a period longer than one year.
- Assuming the answer for one state applies to another, or that state withholding settles the state tax owed at filing.
Related: how Maryland taxes 401(k) and IRA withdrawals, Maryland retirement taxes, retirement withholding calculator, and retirement taxes by state.
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Answer againSources
- Maryland Code, Tax-General section 10-908: https://mgaleg.maryland.gov/mgawebsite/Laws/StatuteText?article=gtg§ion=10-908
- Form MW507P Maryland Income Tax Withholding Form for Annuity, Sick Pay and Retirement Distributions: https://www.marylandtaxes.gov/forms/24-forms/mw507P.pdf
- IRS Tax Topic 413, Rollovers from retirement plans: https://www.irs.gov/taxtopics/tc413
Sources: the primary documents linked above, read on October 7, 2026. General information, not tax advice. Your own facts decide the outcome, and a tax professional or the state agency itself is the right place to confirm anything consequential.