I've recently changed jobs (past two weeks) from an employer with a 401k to a new employer who does not offer any retirement accounts. I made a huge mistake and accidentally cashed out my 401k instead of rolling it into an IRA.

What are my options/course of action for getting this $ back into an IRA and NOT paying the early withdrawal penalty + taxes?

Thank you very much!

  • you should talk to your tax man. Read Joe's answer carefully, make sure to deposit the FULL amount (including the 20% you didn't get), and then make sure to get a tax credit on your tax return at the end of the year for the withheld amount.
    – littleadv
    Apr 28, 2012 at 20:05
  • @littleadv - tax man? Thought consensus here would save him the cost? I think the original 401(k) custodian messed up, just my opinion. Apr 29, 2012 at 0:49
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    @JoeTaxpayer I don't know, when people start to mess up around me I would say that's a good time to get a professional to sort it all out. It might be an issue to find all the relevant supporting docs (and decide which docs are at all relevant), and write it down correctly. Just saying, everything can be done on your own, of course.
    – littleadv
    Apr 29, 2012 at 0:59
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    Understood. This seems a straightforward issue, but if the OP has any doubts about how to proceed, a couple hundred bucks to a pro is better than a busted retirement account. Apr 29, 2012 at 1:35
  • @blueflint - I hope to hear from you how you moved forward on this issue. Nice to see how the advice here turns out. May 1, 2012 at 20:10

2 Answers 2


You have 60 days from the time it came out to deposit the money into an IRA. Tell the IRA custodian it's not a 2012 deposit, but a rollover from a 401(k). Last - it's practice for these withdrawals to have 20% withheld. Be sure to deposit the full amount (i.e. add back in the 20% withheld) and also be sure it's all reconciled on your 2012 tax return.

Edit - to answer your comment/question. "Most" likely, if the account was worth, say $10,000, you would have only received $8000, as 20% is withheld for taxes. So, you have $8000 in your hands, but to roll over the full amount, you come up with an extra $2000, and give the new IRA custodian $10000. Now, in April, 2013, you need to remember the old 401(k) custodian sent the IRS that $2000. It's tax you paid, and all other things being equal, you'll get it back then.

  • Thank you! What do you mean by this part: Be sure to deposit the full amount (i.e. add back in the 20% withheld) and also be sure it's all reconciled on your 2012 tax return.
    – BlueFlint
    Apr 29, 2012 at 0:20
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    What would one do if they didn't have that 20% on hand?
    – Scott
    Apr 30, 2012 at 16:17
  • You'd pay the 80%, lose part of the 20% to taxes, and get the rest of it back at tax-refund time.
    – user296
    Apr 30, 2012 at 16:35
  • @Scott: Then you're screwed (that's why you should always make sure to do a direct trustee-to-trustee rollover). Either find a way to borrow that amount of money from a friend or family, or be slapped with a penalty (in addition to the tax) for early withdrawal
    – user102008
    Apr 30, 2012 at 19:07
  • Scott - one can immediately jack up their exemptions via W4, but with a 60 day ticking clock, it will take a loan from someplace. May 1, 2012 at 0:38

Another, completely different way to look at your huge mistake:

It's not a huge mistake.

You're getting your money out of a restricted account. You're paying taxes now (plus an extra tax of 10%) to regain some of your privacy of where you're putting your money.

You're paying up now as a trade-off to paying much later, when the rules can be completely different and the tax rates much higher.

You're deciding not to put the money into another restricted account, which has yearly reporting requirements to the IRS above and beyond those required with taxable earnings.

It's a cost-benefit analysis whether you roll your money over to an IRA account or not. You hear about the benefits a lot more often than you hear about the costs, which it what I'm introducing you to with my answer.


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