@dmertz wrote:
If you do have taxes withheld, you have the option to substitute other funds within 60 days to indirectly complete the rollover of the entire amount.
California permits state tax withholding to be avoided only if you have no federal taxes withheld.
This is an important point. A third option is to have tax withheld -- I'll guesstimate 24% federal and 10% California. For a $10,000 rollover, that would mean that $3400 goes for taxes and $6600 to the Roth IRA. You then have 60 days to beg, borrow or steal an additional $3400 to put into the Roth IRA to complete the rollover. (Make sure the Roth custodian knows you are using the 60 day rollover rule and does not treat it as a regular contribution.) If you can do that, then you have a $10,000 rollover and you withheld enough to cover the tax. Now you just have to pay off wherever you got the extra money. If you can only put part of the money into the Roth in 60 days -- suppose $2000 -- then you end up with a $8600 rollover and a $1400 distribution from the 401(k).
Hope that makes sense.
Because of the 10% penalty for early withdrawal, it may make financial sense to borrow the funds needed to complete the full rollover, as long as you pay less than 10% interest. (And if you can't pull it from savings or other investments.)
