The Motley Fool Discussion Boards

Previous Page

Investing/Strategies / Retirement Investing

URL:  https://boards.fool.com/kipp-is-dead-on-with-the-basic-info-regarding-your-10006639.aspx

Subject:  Re: IRA and 401K Eligibility Date:  6/6/1997  5:43 PM
Author:  TMFPixy Number:  44 of 98506

Kipp is dead on with the basic info regarding your 401k rollover. There is, though, one other point you need to consider.

Do not have the 401k rollover money sent to you in a check made out in your name. If you do, you will find 20% of the plan proceeds will be withheld for a potential tax bill for the year on the 401k distribution. You roll the 80% you get thinking everything's just fine -- But it's not! Unless you come up with the missing 20% from other resources and add that to the 80% you got, you won't have a complete rollover. In an incomplete rollover, the IRS will say that the 20% withholding was distributed to you. You'll be taxed on that sum as if you had received it. Additionally, if you're under the age of 59 1/2, you'll be zapped with an additional penalty in the form of a 10% excise tax for a premature distribution.

You can avoid all that, though. Arrange for a direct transfer of all the 401k proceeds from the plan to your new IRA. The folks wherever you will establish the IRA (i.e., mutual fund or broker or bank) know how to do this and will guide you through the necessary paperwork Your plan custodian/administrator/human resources folks should be able to help in this regard, too. With the direct transfer, no taxes will be withheld and you won't get constructive receipt of any of the money to trigger a taxation problem. It's the best way to go -- no muss, no fuss.

Regards......Pixy
Copyright 1996-2020 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us