401(k) to IRA
Client has separated from service and wants to rollover his 401(k) Plan balance to a traditional IRA. Apparently the Plan has issued him a check for the full balance of his account without withholding any amount. Can he deposit (no later that 60 days after receipt of the check) the check into his IRA? Will that be treated as a non-taxable rollover? Or do the funds need to go directly from the Plan trustee to the IRA custodian?
Does it make a difference if the Plan check delvered to Client is made out to XYZ Co. as custodian for Client’s IRA, and that check is delivered by Client to XYZ Co.?
Permalink Submitted by Alan Spross on Wed, 2008-02-13 21:17
He can rollover the distribution to an IRA within 60 days. However, it is odd that withholding was not taken, as it should be for all distributions that are rollover eligible and not processed as a direct rollover.
Your second paragraph describes a direct rollover upon which there is no withholding requirement. If the check is made out in this fashion, it would explain why no withholding was taken. A direct rollover includes checks made out to the IRA custodian and delivered via the employee.
The key is that if the employee can cash the check, withholding should be taken out.
Permalink Submitted by Al Fry on Wed, 2008-02-13 22:06
It seems this has become a common practice over the past few years (it happened to me in 2003). The companies must feel there is less liability if the employee delivers the check to the custodian v. a wire transfer.