REVERSE TSP DISTRIBUITON
If within the 60 day period of a rollover, can an individual who incorrectly requested a full withdrawal (with subsequent 20% tax withholding) take the money and move it (along with the missing 20%) to an IRA rollover to avoid the tax/penalty? In this case the individual received a check (minus the 20%), and deposited in his checking account.
It will end up costing him about 50% total with marginal tax and penalty.
Permalink Submitted by Alan Spross on Thu, 2008-02-21 05:07
Yes, replacing the withheld money is required to complete the rollover and prevent the withholding to be subject to tax and penalty. This must be done within 60 days of receipt of the distribution.
This is why rollover to an IRA should be done by a direct rollover, as it eliminates the withholding.