Question

I received a email from my formal employer saying they want to send me a check for my 401k I forgotten that I even had it’s been 5yrs since I worked there ?

Forum|Forum|7 years ago
June 4, 2019
4 replies
0 views

Will it be penalized even if I didn’t withdraw

Employee

You should not take the check for the account because there will be tax and penalty for early withdrawal (under age 59-1/2). Tell employer you want to roll it over to a traditional IRA.

ghost

Employee

If they send a check, you can still rollover yourself if done so in 60 days.

ghost

Employee

It's best to do a direct rollover.
<a rel="nofollow" target="_blank" href="http://www.quickanddirtytips.com/money-finance/retirement/how-to-roll-over-your-401k-when-you-leave-your-job">http://www.quickanddirtytips.com/money-finance/retirement/how-to-roll-over-your-401k-when-you-leave-your-job</a>

O

Opus 17

Employee

If they send you a check and you take the money, that counts as a withdrawal and you will pay income tax and the early withdrawal penalty.

You can set up a private IRA at most banks plus several online discount brokers. If your employer will wait, you should set up the IRA first and then have the 401(k) do a direct transfer into your IRA. That way you keep the tax savings and the investment will continue to grow. (If you feel rushed, you can always take your time later and open another new IRA that you like better and then transfer from one to the other.)

If you get a check, you can put it in an IRA within 60 days. Make sure you tell the IRA that this is a rollover, not a regular contribution. If the 401(k) withholds part of the distribution for tax, you must put the entire amount into the IRA, but you will get the tax back as part of your refund. (That's why a direct transfer is better than a rollover.)

macuser_22

Employee

If you want to roll it into an IRA then call the plan administrator and tell them you want a direct rollover into an IRA and *not* a check. What is the difference? - with a direct trustee-to-trustee rollover the entire amount in the 401(k) plan is transferred to an IRA tax free, with a check, they are *required* to withhold 20% for tax which will become taxable income to you and also subject to a 10% early distribution penalty if you are under age 59 1/2 and you can then only rollover the remaining 80% to an IRA unless you make up the 20% difference form other funds which you are allowed to do. You would eventually recover the 20% withholding when you file the next years tax return and apply the withholding to your tax liability, but it is better to avoid it at the onset and if under age 59 1/2 the 10% additional penalty on the amount of tax withholding will be lost.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**