Distribution from 401(k) and 60 day Rollover

Submitted by Brian Smith on Mon, 2018-11-12 18:45

Good afternoon. Say, if someone takes a distribution from 401(k) in 2018 and decides to use the 60 day window to Roll over part of the distribution…is that still allowed? Also, if they withheld 25% on the original distribution how does that impact the funds they would like to put back into an IRA?

Example: $100,000 distributon from 401(k) less 25% withheld for Federal taxes. They change their mind and they want to use the 60 day window, would they then take the $50,000 and put into an IRA or would they have to take the $50,000…which would include $37,500 net from the distribution and the $12,500 withheld for taxes to equal the $50,000?

Thank you for your help.



Submitted by Alan - IRA critic on Mon, 2018-11-12 19:00

  • They can take a 401k distribution and do a 60 day rollover to an IRA of part or all of the distribution. But such a distribution is subject to mandatory 20% withholding (can be increased to 25% upon request). In your example, the person would receive 75,000 after withholding.  If they only want to be taxed (plus 10% penalty if under 59.5) on 50,000, they could roll 50,000 to their IRA. But that would only leave them with 25,000.  (Note: if they separated from service at 55 or later from this plan, there would be no 10% penalty on any of the distribution).
  • If the age 55 separation did not come into play, it might be more efficient to do a direct rollover of the entire 100k to the IRA, then take IRA distributions as needed with no withholding requirement if they decline it. Or they could select the rate they want starting at 10%.

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