@Robby624 wrote:
Gotcha appreciate that
Also, if you want to put the money back into tax-free retirement, you can do that if it is less than 60 days since you made the withdrawal. Sometimes I think employers don't explain the options, they just tell you that when you separate, you must leave the plan.
You can of course, take the money and pay the tax. But if you want to keep it tax-free for retirement, you have 60 days to deposit the money into an IRA (that you can open at many banks or brokers) or deposit the money into the 401k of your new employer (if they will accept the funds). This is called a rollover and is tax free.
In your case, you would have to deposit the whole $6819 into the new plan, which means you have to temporarily borrow the $1200 that was withheld so you can deposit it into the new rollover account. But if you do a rollover, it's tax-free and the entire withholding amount gets added to your tax refund, so you get it back when you file your return. Even if you had to pay someone to borrow the money for 6 months, the short term cost of a loan is probably less than the tax you would pay. Or, if you deposited just the $5608, then it counts as a rollover of $5608, and a taxable withdrawal of $1211. The tax on that withdrawal would be about $300, so you would get most of the withholding back in your tax refund.
The key date is that the rollover must be completed within 60 days of the withdrawal.
