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Author: Cardsany1 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121114  
Subject: IRA Rollover Tax Withholding Date: 6/25/2000 10:52 AM
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My fiancee recently left her job and decided to roll over her 401k account. She rolled over her account into a traditional IRA account and then converted the traditional IRA account into a Roth IRA account. Unfortunately, she did not fill in the account application section which would have waived all federal withholding tax. Her account is now 10% lighter and I suspect she is also subject to a 10% premature distribution penalty tax. Is there anyway to fix this error either now or on her tax return?
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Author: rensimer Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 36881 of 121114
Subject: Re: IRA Rollover Tax Withholding Date: 6/25/2000 11:18 AM
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Is there anyway to fix this error either now or on her tax return?

She can make up the 10% withheld herself by adding an an equal amount to her Roth but being sure to characterize it as a rollover contribution. This needs to be done within the 60 day time limit of her original rollover date.

If both the IRA and Roth are with the same custodian, talk with a rep first; they may be able to undo the withholding mistake for her (I don't know for certain if they are allowed to do this once it's done, but I'd at least ask.).

WTR

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Author: Cardsany1 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 36882 of 121114
Subject: Re: IRA Rollover Tax Withholding Date: 6/25/2000 11:44 AM
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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?

<<Is there anyway to fix this error either now or on her tax return?
She can make up the 10% withheld herself by adding an an equal amount to
her Roth but being sure to characterize it as a rollover contribution.
This needs to be done within the 60 day time limit of her original
rollover date.
>>

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Author: Bob78164 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 36884 of 121114
Subject: Re: IRA Rollover Tax Withholding Date: 6/25/2000 1:09 PM
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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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