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Old 06-08-2011, 10:54 AM
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IRA Rollover

I rcv'd a forced 401(k) distribution from my employer, when the company changed hands. I went to my bank and opened up a money market IRA with half of the money. With the other half of the money I went to a credit union and opened up another money market IRA. I recently found that the account at the credit union was not in fact an IRA, they opened up a regular money markey account. I was assured by the bank officer when I opened up the account that it was an IRA. I rcv'd no checks, which you normally get with a money market, and had no indication that this was not an IRA. It is past the 60 day window to roll it over to a real IRA. I have called the IRS, but after being on the phone for 3 hours, I got no real answer. I was told I could file a waiver for the taxes I would owe? Can anyone provide me with any guidance on how to proceed? Is there a chance that I wont be liable for taxes on the distribution?



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Old 06-09-2011, 06:27 AM
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“ I was told I could file a waiver for the taxes I would owe? Can anyone provide me with any guidance on how to proceed? Is there a chance that I wont be liable for taxes on the distribution?”--->I don’t think so.The IRS is very strict on this 60 day distribution rule and there are no exceptions. It is true that as you get a check from your 401k sponsor, You will then have the responsibility to deposit this amount into a rollover IRA account within 60 days to get the distribution cash reinvested into a rollover IRA; I mean you have, at least theoretically, 60 days to rollover the funds into an IRA without tax or penalty. However, since you received the check yourself the custodian is required to withhold 20% for federal taxes mandated by the IRS. The 20% tax that is withheld will be counted against your income tax payable or will be counted towards any refund due for the tax year when you file your tax return.That money is credited to you on your 1040, but it means you will be short of funds to rollover by 20%. The result would be that, unless you could come up with the money from other sources, you would have to pay tax and penalty on 20% of your distribution If you are under the age of 59 and a half and do not get this done, you will be ALSO subject to the 10% penalty tax. So to speak, the withdrawal is taxed at whatever your tax rate is. UNLESS you arrange for a direct 401k rollover known as a trustee to trustee 401k rollover, under a cash out transaction , as said above, your employer will be required to withhold a 20% tax amount, leaving you with only 80% of your cash. Furthermore, you will be required to pay a 10% early withdrawal penalty if you are under the age of 55 and withdraw your 401k retirement savings as cash. The 10% withdrawal penalty will NOT be counted against your income tax payable or will be counted towards any refund due for the tax year when you file your tax return. You also might want to start making quarterly estimated tax payments on the lump sum cash distribution.


Last edited by Wnhough : 06-09-2011 at 06:49 AM.


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