A 60 yr old client received a lump sum distribution fron a terminated plan. She chose that instead of an annuity. They withheld 20%. Can she roll that over into an IRA and get credit on 1040 for the 20% withheld? Or just do a non-qualified account?
She participates in her current employer’s 401k. I told her to check to see if the plan would accept the rollover, but we haven’t heard back yet. If they don’t accept rollovers, can’t she just open a new IRA rollover somewhere else?Thanks
Yes, she can open a new IRA to receive the rollover anywhere she wants. The current 401k might not accept rollovers from other qualified plans, or if they do might want some evidence that there are no after tax contributions included in the distribution, since after tax amounts can only be accepted by a 401k by direct rollover from the former plan. Perhaps her statement showing that the 20% withheld was applied to the full gross amount would be enough evidence if it came to that,
Permalink Submitted by Alan - IRA critic on Thu, 2017-11-02 17:01
Yes, she replace the 20% withheld using her other funds and roll the total over to an IRA within 60 days of receipt of the 80% check. That would eliminate any taxes on the distribution, and probably set her up for a large tax refund upon filing her 2017 return.
Permalink Submitted by Stephen Hodson on Fri, 2017-11-03 21:03
That’s what I thought, but I always like to confirm. Thanks alot