recharacterization question
I have a client that received and lump sum cash payment (about 2 months ago) from her 403B plan, not really understanding what was going on she paid the 20% withholding. She has since spent some of the money but has a good chunk of it left. My question is does she have an option to recharacterize, if the terminology makes sense, that distribution or is it too late and if it isn’t too late is that fact that she spent some of the money disqualify her? Any insight would be appreciated.
Permalink Submitted by Denise Appleby on Fri, 2012-05-25 01:32
[quote=”[email protected]“]I have a client that received and lump sum cash payment (about 2 months ago) from her 403B plan, not really understanding what was going on she paid the 20% withholding. She has since spent some of the money but has a good chunk of it left. My question is does she have an option to recharacterize, if the terminology makes sense, that distribution or is it too late and if it isn’t too late is that fact that she spent some of the money disqualify her? Any insight would be appreciated.[/quote]
Eric, do you mean ‘rollover’, that is, put the money back into another retirement account, such as an IRA? If so, see http://www.retirementdictionary.com/faqs/rollovertaxeswithheld . She can rollover the amount that she still has left, if she is still within the 60-day period. The amount not rolled over would be treated as ordinary income to her
If not, can you provide say exactly what she wants to accomplish? Forget about the terminology for now. We will get to that later.
Permalink Submitted by Alan Spross on Fri, 2012-05-25 04:46
If she spent some of the money, it is unlikely that the IRS would extend the 60 day rollover deadline. But within the 60 day deadline it does not matter what she does with the money. She can still roll to an IRA the amount she has left, or also replace all or part of the amount she spent and/or the amount that was withheld due to mandatory 20% withholding.
It is highly unlikely that she could roll the funds back to the 403b plan even if the plan otherwise accepts IRA rollovers.