Question

Indirect Rollover: Planning to send full acct from A (sep) to B (solo401). But would like to keep 10K for 60 days. Will "A" keep 20%? Do I need to return 8K plus 2K?

Forum|Forum|7 years ago
June 5, 2019
3 replies
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Indirect Rollover

I am planning to send the full amount of cash from a sep ira (A) to a solo 401k (B).
The bulk of the money will go from bank A to bank B. But I (C) would like to use some funds for 60 days, and I am a bit confused.

Let's supposed I will direct current bank A to transfer $10,000 to my personal bank C. The balance will go straight to bank B from A (new solo 401k).

From what I read on the internet, It looks that the bank will send me $8,000.
In order to avoid any penalty or taxation, I need to return the $8,000 + $2,000 to avoid the mess.
So my question: will the originating bank A give me back the $2,000 or it's money that will be kept as tax and sent to the Taxman? If they give back to Ira bank (A), it's like a contribution to retirement (2k withheld +new 2K)

And a complication. How Bank A will certify that I actually added the 2,000 to bank C?

Thank you so much!

The assumption is that we follow the rules to avoid early distribution (which is basically the 60 days).

VolvoGirl

Employee

If they take withholding out of it you will have to replace it with your own money. The bank will send the withholding to the irs. You will then get it back on your tax return. Bank A doesn’t need to know you replaced the 2,000. @dmertz

G

goakgoakAuthor

That makes sense. Thank you.

D

dmertz

Employee

To add to what VolvoGirl said, the payer must always send the federal or state tax withholding to the corresponding taxing authority. Any excess withholding with respect to your overall tax liability for the year will be refunded to you when you file your tax return.

Also, if you have any nondeductible traditional IRA contributions (these would not occur from SEP contributions), the amount of the nondeductible traditional IRA contributions cannot be rolled over to the 401(k).

Under the circumstance, because IRS Pub 590-A indicates that you should provide an explanation statement describing a rollover from an IRA to a 401(k) and TurboTax does not provide any mechanism for adding this explanation to an e-filed tax return, you should paper file your tax return for the year that this happens and provide an explanation statement regarding the rollover to the 401(k) because the 401(k) will not provide any reporting to the IRS of receipt of the rollover. The explanation statement will head off any IRS questions about whether or not the rollover was completed, a question that the IRS seems to be asking more frequently lately.