Distribution instead of Rollover
My wife’s company 401k plan was being closed and she didn’t rollover the money to her IRA within the time period they gave her. The custodian sent a check and withheld 20% taxes. We don’t have the amount of taxes in our pocket to add to the check & deposit back into her IRA. If we only put in the amount we received, will this go under the 60 day rollover and then we are only responsible for taxes on the tax that was sent to the IRS?
Permalink Submitted by Alan Spross on Fri, 2011-07-29 18:14
That is correct, although there will also be a 10% penalty on the withheld amount unless she is over 59.5 or unless she separated from service in the year she reached 55 or later.
Every dollar that can be added to the amount received up to the gross distribution will eliminate current taxes and penalty on that dollar. You could reduce any current withholding immediately in order to recover the withheld funds sooner than waiting for a tax refund next spring.