I have 2 IRA accounts with 2 seperate companies. I had an IRA account with an old employer and needs funds from it for a hardship and requested disbursement for some of the funds into those 2 accounts. Received2 checks for said accounts but was told there may be a penalty tax if 2 rollover deposits are made within the same year. How do I avoid this?
It depends. The IRS is very specific in its one-rollover rule regardless of your circumstances. One way to avoid this I suggest using a Trustee to Trustee rollover, also referred to as a direct transfer. This is done by using a direct transfer from one trustee to another without handling the money. Direct transfers are not counted as rollovers and are not subject to the one-per-year limitation nor the 60-day rollover period.
You may contact the trustee from one of your accounts to see if you may return the check and then have them transfer the money into the IRA account of your choice. Do this before the due date of your return.
Why do you say 401k in your question? A 401K is NOT an IRA. They are controlled by different tax laws even though they have a similar purpose. There is no one-per-year limit on rollover checks from a 401k to an IRA, only on IRA to IRA rollovers.
(But in any case, it is always safer and better to do a direct transfer.)