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Subject:  Re: 401 k direct rollover vs. transfer to IRA Date:  10/14/2002  3:49 PM
Author:  pmarti Number:  61711 of 127613

What are the different tax implications of: a direct rollover into a new personal retirement account versus the transfer of the funds to an personal IRA account?

I'm not quite sure what you think the choices are, from the way you phrased this. You have really only one (initial) destination: a traditional IRA. If you want to choose from one fund family in the future, establish the IRA with that fund family.

The only sensible way to get the funds from your 401(k) to your IRA is a direct transfer. Without a direct transfer the 401(k) is required to withhold 20%, which you either have to make up or recognize as income.

Don't panic when the 401(k) sends you a 1099-R. For reasons unknown to me, the rules require them to do this, even though they code it as a direct transfer. You'll report the 1099-R on Form 1040, line 16, with the amount rolled over on line 16a and zero on line 16b.

Good luck with the teaching.

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