for all you accountants out there - 401k question?
for all you accountants out there - 401k question?
I left my job and requested a distribution from my 401k. The check was made out to me and 20% was withheld for taxes. However, I'm putting it into an IRA within the new 60 day window. Will I be able to recoup my 20% or get that back as a tax refund?
Answers:
Chosen Answer
Charles G: You would also need to roll over the 20% that was withheld for taxes (from personal funds) to avoid an early withdrawal penalty. If you do that, you should get it refunded at tax time (minus what other taxes you might ordinarily owe). If you don't have the funds, then you will be charged a penalty (if you are younger than 59.5 years) and pay income tax on the 20% that was withheld. That is why a direct rollover is better.
2008-12-18 19:18:24
Charles G: You would also need to roll over the 20% that was withheld for taxes (from personal funds) to avoid an early withdrawal penalty. If you do that, you should get it refunded at tax time (minus what other taxes you might ordinarily owe). If you don't have the funds, then you will be charged a penalty (if you are younger than 59.5 years) and pay income tax on the 20% that was withheld. That is why a direct rollover is better.
2008-12-18 19:18:24
Bob F: You need to roll the entire gross over into the IRA, not just the 80%. You will get credit for that 20% when you file your taxes just like you get credit for any federal tax withheld from anything, most commonly your paycheck. But if you don't roll the entire 100% gross, meaning you have to come up with the money to match what was withheld, you will pay 10% penalty plus income tax at whatever your bracket is (common 10% to 25%) plus state income tax on any part of the 100% not rolled over.
2008-12-18 19:28:45
2008-12-18 19:28:45
ninasgramma: For clarity, I assume that you took a $10,000 distribution, with $2,000 withheld for taxes and you received an $8,000 check.
If you roll the $8,000 into an IRA, no tax or penalty is owed on this distribution.
The $2,000 that was withheld for taxes is a taxable distribution to you. You will pay income tax on the $2,000, plus a 10% penalty if under age 59.5. If you are in the 15% tax bracket, this comes to $500 of tax. If you have other withholding to cover your other income, you would get a refund of $1,500 of your withholding.
To avoid the additional tax, you need to come up with another $2,000 to put into that IRA within 60 days. If you do, then you will avoid tax and penalty on the withholding and receive a refund of all of it (assuming you paid tax on other income).
2008-12-19 04:20:34
2008-12-19 04:20:34
growing inside: You will get it back as a tax refund when you file. Make sure you put the full amount into the IRA, and not the amount after the 20% tax
2008-12-19 07:00:51
2008-12-19 07:00:51