401k distributed funds – taxes withheld
I have a client’s son who’s 401k was distributed to him since it was under $5,000. A portion was pre-tax and a portion was Roth – 20% taxes were withheld for the pre-tax portion. He is under 55. He would like to put the check into a Roth IRA and I know he has 60 days to do so to avoid the 10% penalty, if he does this does he also need to make up for the taxes that were withheld to avoid the 10% penalty on those dollars?
Permalink Submitted by Alan - IRA critic on Thu, 2022-02-10 17:12
Yes. Withholding is treated as being distributed to the participant and then paid by the participant to the IRS. To be able to report a complete rollover he needs to use other dollars to roll over the gross distribution. He then needs to track his new Roth IRA regular and conversion/rollover basis so he will be able to report any Roth IRA distributions.