401K Roll Over to IRA
I made a direct roll over of all of my 401K balance last May, 2021to an IRA. The financial institution sent me a check payable to the financial institution who is handling my IRA, FBO to my name and with my IRA account number on the check. The transaction was not taxable. They did not deduct any taxes since it was a direct roll over. I deposited it to my IRA account as soon as I received the check. I thought everything is good. But then on June 29 I received an email that the financial institution handling my 401k sent me another check for the residual amount (interest), but this time they issued the check to my name, not to my IRA financial institution. I tried to call them but I was told that they cannot reverse the transaction and cannot issue another check payable to my IRA account. They deducted taxes on the amount. So the check was net of tax . I am still holding the check.
Will I have issues when I file my tax return next year? What should I do? Please advise.
Thank you.
Permalink Submitted by Alan - IRA critic on Tue, 2021-07-06 17:39
They should have issued a supplemental direct rollover to the IRA. But since they didn’t and this is a small amount of money, you should do a 60 day rollover and replace the amount withheld with other cash to have a complete rollover. You can then apply the amount they withheld to your 2021 tax bill on your 2021 return. While you will receive a separate 1099R for each distribution, the taxable amount on line 5b will be 0 if you replace the withheld amount.
Permalink Submitted by Nelie Cruz on Wed, 2021-07-07 01:00
The residual amount is only $4.58. They withheld $0.91 from it and so I got a check for only $3.67. My IRA custodian advise me to just deposit the $3.67 check to my bank account and treat it as a regular distribution. Is this correct? Will it not affect and screw up the other distribution when I file my tax return next year? I am really worried about this small amount of distribution that was not issued correctly.I would really appreciate your expert advise on this.Thank you so much.
Permalink Submitted by Nelie Cruz on Wed, 2021-07-07 01:00
The residual amount is only $4.58. They withheld $0.91 from it and so I got a check for only $3.67. My IRA custodian advise me to just deposit the $3.67 check to my bank account and treat it as a regular distribution. Is this correct? Will it not affect and screw up the other distribution when I file my tax return next year? I am really worried about this small amount of distribution that was not issued correctly.I would really appreciate your expert advise on this.Thank you so much.
Permalink Submitted by Alan - IRA critic on Wed, 2021-07-07 01:08
I agree that for such a small amount, a rollover is not worth the trouble. While you could certainly complete the rollover if you really wanted to, it does not make any difference for this small an amount. Whatever you decide, it will have no effect on the large direct rollover. If it were me, I would just deposit the net check into your checking account. You will have an additional taxable income amount of $5 rounded.
Permalink Submitted by Nelie Cruz on Wed, 2021-07-07 01:32
I will just deposit the check to my checking account. I really really appreciate you taking the time to respond. Thank you so much for taking away my worries!