I deposited a check from a 401k that I was changing and they took out taxes. Will I get penalized?
Rick M asked:
I deposited a check from a 401k that I was changing and they took out taxes. Will I get penalized for receiving the check and then depositing it into another 401k account even though they already took out the taxes?
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I deposited a check from a 401k that I was changing and they took out taxes. Will I get penalized for receiving the check and then depositing it into another 401k account even though they already took out the taxes?
March 18th, 2009 at 6:48 pm
You wil not get penalized if you put it into another 401K within 60 days. However, when you open the new 401K you have to make sure you include the amount that was withheld you so you rolling over the exact amount that was in your old 401K into the new one.
If you need to transfer the 401K again ask the employer not to make the check out to you and they will not have to deduct the 20% taxes
March 19th, 2009 at 11:51 pm
In order to avoid any tax consequences on a 401K exchange, you must NEVER take possession of the funds personally. Any check for changeover should be made payable directly to the replacement 401K. If those funds are in your personal accounts for even one second, you will incur an early withdrawal penalty and will be asked to include the amount to your taxable income.
March 22nd, 2009 at 7:24 pm
The part that was withheld as tax is going to be treated as a withdrawal and you will owe tax and penalty on that because you, in effect got the money. This is why you should never touch the money yourself.
March 23rd, 2009 at 11:53 pm
If you put less into the new fund than you took out of the old one, yes the difference would be considered a taxable withdrawal, and if you’re under 59-1/2 you’d also owe penalties on the amount not put back in.
Example: your old 401K was $10,000, they withheld $2000 for taxes and sent you a check for $8000 and you put the whole $8000 into a new qualified retirement account. The $2000 would still be considered a withdrawal and would be taxable.
March 24th, 2009 at 8:47 am
I am not too clear of what happened but if you made out a check from one 401K to transfer to another 401K, the transfer should have been non taxable. Instead of having accounts all over the place, why not combine the 401Ks.
March 24th, 2009 at 11:59 am
YES WHAT U SHOULD OFF DID WAS MADE A TRANSFER…BECAUSE ONCE IT TOUCHES UR HANDS U WILL GET PENALIZED.. IT HAPPENED TO ME AND THIS IS WHAT THEY TOLD ME TO DO IF I EVER WANT TO DO IT AGAIN…MAKE SURE U DO A TRANSFER…
March 27th, 2009 at 5:53 am
When doing a rollover distribution you have only 60 days to complete the transaction. The safest way to proceed is to have the 2 plans coordinate the rollover distribution so you never get your hands on it.
If the money passes through your hands the distribution will be subject to withholding at 20%. There is NO way to avoid that. While you do still have 60 days to complete the rollover you MUST deposit 100% of the total distribution within that 60 day window. That means that you MUST come up with that 20% that was withheld from your OWN FUNDS to avoid any taxes or penalties on the rollover!
For example, if you take possession of a distribution of $20,000 then $4,000 will be withheld from it. If you wish to do a rollover with this you must deposit the full $20,000 within 60 days. Since you only have $16,000 from the distribution you MUST come with $4,000 of your OWN money to avoid any taxes or penalties on the distribution. If you don’t then the $4,000 will be subject to tax at your margainal rate, plus a 10% penalty ($400 in this case) if you are under age 59 1/2.
Furthermore if you take longer than 60 days to complete the rollover distribution then the ENTIRE distribution is subject to tax at your marginal rate, plus the 10% penalty (now $2,000) if you are under age 59 1//2 AND you can no longer roll the funds over into another qualified retirement plan at all.
You committed a serious strategic error when you took possession of the funds. When you took the distribution, part of the paperwork that you signed would have explained the above rules to you. If you didn’t read it then you have learned an expensive lesson!
March 29th, 2009 at 1:35 am
There is a time limit on how long you wait to re-invest the money into another account. If you don’t re-invest it in another 401K, you will be charged 10% penalty. The correct way to do this would have been to have the account transferred from the old 401K (with no check written to you personally) to your new 401K account, but it’s too late for this now.