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i had my kid post this to get an answer from the board....

he had a roth 401k from his previous employer...he wanted to roll it

to an already established roth ira at capital one...if that helps. cgrinder

The answer is the still the same as I answered above whether it's you or your kid, although if it's your kid, it's even more likely that he will have to pay a penalty on the taxes he had withheld from the match, unless he is able to re-contribute that money within 60 days of when the distribution was made from the 401(k).

It was a mistake to have them withhold taxes from the match money, because of the penalty. He will probably have to pay additional taxes, plus the penalty, when he files his return.

Maybe some actual figures will help:

$10k in account - $4k from match and $6k from his Roth contributions.

He had them withhold taxes at 20% ($800) from the $4k, so the check included $3.2k from the match and $6k from his Roth contributions, so he rolled $9.2k into the Roth IRA.

He will owe taxes at his marginal rate on the $3.2k that he rolled over. If his marginal rate is 25%, that's $800

Then, he will owe taxes at his marginal rate, plus a 10% penalty on the $800. Again, if his marginal rate is 25%, that's $200 in taxes, plus an $80 penalty, for a total of $280 in taxes and penalty on the taxes that were withheld.

Adding both together, his tax liability is $1080 on the rollover. Since he only had $800 withheld, he will either have a $280 smaller refund, or he will need to come up with an additional $280 to pay the IRS when he files his taxes.

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