Roth 401k cashed out, can it be put into ROTH within 60 days?

Submitted by John Jawor on Thu, 2018-03-08 20:03

Silly clerical error and no common sense by the TSP plan caused my clients 401k ROTH to be cashed out. he is under 59 1/2 so they withheld taxes.

Question. If he gets the check can he then do a 60 day rollover to his current ROTH IRA? can he make up the taxes withheld in the rollover to get the withhelf Taxes back at tax filing?

Thoughts?

I know he has lost the penalty $s, but can we at least minimize the damage??



Submitted by David Mertz on Thu, 2018-03-08 20:15

  • Yes, he can indirectly roll over the Roth 401(k) distribution to a Roth IRA within 60 days of the distribution from the Roth 401(k).  To complete the rollover of the entire gross distribution, he’ll have to use other funds to replace those withheld for taxes.  Any excess withholding will be refunded when he files his tax return.
  • With the entire amount rolled over, there is no tax or early-distribution penalty.

Submitted by John Jawor on Thu, 2018-03-08 20:23

Thank you for your prompt reply. i am getting a different answer from Putnam.  They are saying we can do the direct rollover but we cannot add funds to make up for the tax withheld from the ROTH 401k.  Are you 100% confident in your response?  I have CPAs that I reach out to but the turnaround time this time of year is a few days and I would like to give my client guidance ASAP.  thanks in advance

Submitted by William Tuttle on Thu, 2018-03-08 20:48

You can always rollover 100% of a rollover eligible distribution. The very fact that they withheld the 20% indicates that it is rollover eligible. Putnam is not correct because by definition it is a distribution followed by an indirect rollover.

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