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My former employer's 401(k) plan has been terminated and I was mailed a distribution check with 20% tax withheld. However, I wanted to move my money into my current employer's 401(k) and not pay tax. Is there a way to fix this?

One representative I spoke to suggested moving the money into a new IRA, making up the difference from my own pocket, and then asking for a rebate a tax time. Will this work?

Thanks.

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Did they not give enough warning so employees could transfer to IRA with no withholding issues? –  JoeTaxpayer Oct 10 '12 at 23:46
    
they did, but I forgot to speak with them before the deadline... so this is about fixing a mess I got myself into. –  nielsbot Oct 11 '12 at 0:31
    
Make sure you understand what portion is pretax, posttax and earnings. –  mhoran_psprep Oct 11 '12 at 3:51
    
@mhoran_psprep I assume it's all pretax since it was from an employer 401k? Or do I not understand something? –  nielsbot Oct 11 '12 at 7:11
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You can put money into a 401K before taxes, after taxes, and now they even have a Roth 401K. You may have done everything pretax, but not everybody does it that way. –  mhoran_psprep Oct 11 '12 at 9:56
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1 Answer

up vote 4 down vote accepted

One representative I spoke to suggested moving the money into a new IRA, making up the difference from my own pocket, and then asking for a rebate a tax time. Will this work?

That's probably the only thing that will work, and you have to do this ASAP: you have 60 days from the distribution to complete the deposit.

Make sure to make up for the withheld 20%, and deposit into the IRA the full amount, and make sure to give all the relevant information to your tax preparer to ensure you do get the withheld 20% back as a tax credit.

You can check with your current 401k plan if you can deposit there, but in many cases you cannot. IRA is a safe bet.

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thanks. this is what I've been hearing from other sources as well. –  nielsbot Oct 10 '12 at 23:23
    
I was told that unless i redeposited the check I got into the ira that I would be responsible for the taxes. That I could not deposit it in my account and then put it into the new IRA with out penalties and taxes. –  user4127 Oct 12 '12 at 20:45
    
@Chad I'm not sure if you must redeposit that exact check, I don't think so. It might be that you were told that in a case of a direct rollover, then you must indeed deposit the check directly to the IRA account. –  littleadv Oct 12 '12 at 21:01
    
@littleadv ok that is probably why –  user4127 Oct 12 '12 at 21:12
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