Message Font: Serif | Sans-Serif
 
No. of Recommendations: 5
I asked them to remove the taxes from the 3%

That was probably a mistake.

I received this November 29th and had it shipped December 26th, over-nighted.

How was the check made out? To "ShareBuilder, FBO cgrinder" or to "cgrinder"? Or something else? What was the date on the check/when was the money withdrawn from the 401(k)?

I just need to know if there is anything bad I should expect in this situation. Did I do this correctly or is there something I will have to do to fix this?

You will have a tax liability at your marginal rate for the match that you rolled over.

In addition, for the taxes that you had withheld, unless you are at least 59 1/2, you will have a tax liability at your marginal rate, PLUS a 10% penalty. You can fix the penalty by sending an additional check to ShareBuilder for the amount of the taxes that were withheld. You MUST do this within 60 days of the date that the money was withdrawn from the 401(k) account - so if the money was taken out of the 401(k) on or before Oct 28, 2017, you are pretty much out of luck. If it was on Oct 30 or 31, you need to get the check to ShareBuilder this week.

Another issue to be aware of is:
- The taxes were probably withheld at a 20% withholding rate - that's pretty typical for 401(k) withdrawals. However, your tax rate on this withdrawal will be at your marginal rate, and this income could even push part of the withdrawal into a higher bracket. If your marginal rate is 25% or higher, the taxes that were withheld will not cover the tax liability for this income, much less the penalty, if you can't get it corrected. Therefore, be prepared to pay additional taxes, or receive a smaller refund than you otherwise would have when you prepare and file your 2017 taxes.

For anyone under 59 1/2 who is converting pre-tax money to a Roth - either from a 401(k), like cgrinder, or from a traditional IRA: DO NOT have taxes withheld from the conversion amount, unless you can immediately add the withheld amount to the Roth account out of your pocket, or you will be assessed a penalty. As a general rule, if you cannot pay the taxes on a conversion from cash that's outside of the account that's being converted, you probably should convert less.

AJ
Print the post  

Announcements

Disclaimer:
In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.