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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?
    – JTP - Apologise to Monica ♦
    Commented Oct 10, 2012 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
    Commented Oct 11, 2012 at 0:31
  • Make sure you understand what portion is pretax, posttax and earnings.
    – mhoran_psprep
    Commented Oct 11, 2012 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
    Commented Oct 11, 2012 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
    Commented Oct 11, 2012 at 9:56

1 Answer 1

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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
    Commented Oct 10, 2012 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
    Commented Oct 12, 2012 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
    Commented Oct 12, 2012 at 21:01
  • @littleadv ok that is probably why
    – user4127
    Commented Oct 12, 2012 at 21:12
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    BTW--this worked fine, it just sucked that I had to come up with the money to make up the withheld tax. I actually went in to a Schwab branch and met with a teller to make the deposit. You will need all your documentation.
    – nielsbot
    Commented Mar 7, 2015 at 22:45

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