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Cardsany1 writes:

Thanks - can she recover the taxes which have been withheld as a credit on her tax return? Also, is it the case that she will also avoid the 10% premature distribution penaly if she deposits the 10% withheld by the end of the 60 day window?

I reply:

She will recover the taxes next year when she files her taxes. In the alternative, since the taxes have already been withheld, she might consider reducing her "normal" withholding for the rest of the year to account for the unexpected and unnecessary withholding.

Assuming the she completes the rollover in time (and the IRS is quite strict about this), she will owe neither taxes nor penalties on the distribution. However, she will not be able to do another rollover with that money (as opposed to a trustee-to-trustee transfer) for a year. That's usually not an issue, but it's something she should know about. --Bob
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