60 day rollover… plus more?
Scenario used to withdraw qualified funds before age 59.5 without penalty. Current age is 57.
Client was leaving current employer. Needed source of funds, so money was withdrawn from IRA (~20 days prior to separation)… with intention to “pay back” (rollover) from 401k penalty free for separating from service after 55.
Total 401k balance was only slightly higher than the amount withdrawn from the IRA. Client took entire balance with intentions of using the excess for a few things, but now doesn’t necessarily need it. When putting the amount back into the IRA for the 60-day rollover, can the initial amount be put back in along with that excess that was withdrawn from the 401k?
Sample numbers:
$50k withdrawn from IRA.
$60k withdrawn from 401k.
Originally only the $50k was going to be replaced, but now the extra $10k is no longer needed.
Can the entire $60k be rolled into the IRA?
Permalink Submitted by Alan - IRA critic on Tue, 2018-06-26 19:40
If 75k was withdrawn from the 401k less 20% mandatory withholding = 60k, client can roll over as much as he can afford to and eliminate taxation. Completing the IRA rollover of 50k will avoid the 10% penalty as well as the ordinary taxes, so as long as client is within 60 days of the distribution (and did not do an IRA rollover in the 12 months previously), it would be best to complete the IRA rollover first. Any amounts not rolled over from the 401k distribution would generate tax but no 10% penalty per the age 55 separation exception. Again, any withholding taken out of either distribution has to be factored into the rollover math.