@Blake13 wrote:
Thanks for the response! She did not cash out her 401k the check was issued by the administrator. This was done like 2 weeks ago
How did she get a check if she did not "cash out"? Now you are confusing me. Maybe the plan issued a check because she quit the job and her balance was small enough that they closed her account out automatically. So it wasn't her request, but the 401k was still closed.
And you have plenty of time to fix this if it only happened 2 weeks ago.
Let me attempt to clarify. Please correct if I am wrong.
1. Bride received a check from the 401k plan.
2. Groom deposited an equal amount of funds into an IRA owned by the groom.
3. Groom may also have rolled over funds from groom's old workplace plans into groom's IRA.
So this is what needs to happen.
1. Bride opens an IRA in bride's name and deposits an amount equal to the check from bride's 401(k). Bride informs IRA custodian before sending funds that this is a rollover from a 401(k). This must be completed within 60 days from the original 401k withdrawal. The money can come from anywhere, it is not necessary for it to be the exact same dollars withdrawn from the groom's IRA. (Because, once you receive money in the form of a check or bank deposit, it loses it's "source" and is just "money" with all your other money.) Doing this within 60 days makes this a legal and correct rollover.
1a. Bride will receive a 1099-R from the 401k plan detailing the withdrawal. In the tax program, bride will be asked "what did you do with the money" and one of the choices will be "I rolled it over into a new qualifying account within 60 days." This will make the withdrawal non-taxable.
2a. Groom can leave the $2000 deposit in groom's IRA and consider it a tax-deductible contribution. It doesn't matter that the source was bride's account, because once the check was deposited in the bank, it just becomes generic money.
2b. Or, groom can contact groom's IRA and request for a return of the $2000 because it was a mistake. Groom does not need to recharacterize it or explain. You can ask for an IRA contribution to be returned in the same tax year it was made, no questions asked and no explanations needed. Just say it was a mistake or you changed your mind. If the original deposit increased in value, that gain must also be returned. Groom would get a 1099-R for the gain that they report on their tax return and pay income tax plus a 10% early withdrawal penalty.
