3690289
I withdrew all funds from a former employer 401k. The funds were made out in a check payable to me. I deposited the funds to my checking account. I just learned I will be taxed big time for not having the funds made payable to my bank, and going through my hands. I have already paid 20% for the withdrawl from my former employer account. How can I correct this?
I am recently retired at 74. Thanks.
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If you didn’t contribute the funds into another retirement account within 60 days you will have to pay tax on the withdrawal.
What did you want to do? Transfer it to your IRA? It's ok to deposit a check into your checking account. When did you get the check? You have 60 days to move it to a Traditional IRA account or another 401k account. Do you still have time? You would need to put the whole gross amount before including the 20% withholding into the IRA to avoid the tax. So you would have to replace the 20% with other money. Or the 20% withholding will become taxable by itself. If you are able to put it in a IRA you can get back the 20% on your tax return.
At the end of the year you will get a 1099R for it. OH, have you been taking out the RMD from the 401K and IRA accounts? You need to. You have to take out the RMD Required Min Distribution before you can move any to another account. So you do need to account for the RMD.
Enter a 1099R under
Federal Taxes
Wages & Income
Then scroll way down to Retirement Plans and Social Security
Then IRA, 401(k), Pension Plan Withdrawals (1099-R) – Click Start
If you are adding another 1099R there might be a Add button at the bottom of the list.
Hi Volvo Girl,
I appreciate your reply, but I am still confused. Here is the story:
I wanted to transfer the entire balance from my 401a (I am no longer employed there) to my Roth IRA at my bank. The form I completed mistakenly directed the funds be direct deposited to my checking account, rather than in a check payable to the bank FBO me. The funds were deposited to my checking account on 4/9/25.
When I tried to transfer the funds to my Roth, I was told only $8000 could be deposited. In researching, I am finding I will be penalized (IRS) since I touched the funds and they were not Trustee to Trustee transfered. Do I need to open a second Roth to transfer this amount from my checking account?
Im not sure I understand the process of depositing an additional 20%..
In answer to the RMD, I have not yet taken care of this. I just retired in Oct 2024 at age 73. Do I have till December 31 of this year to take my RMD for this year?
Thanks for your help!
You had to take the first RMD the year you turned 73 or may delay receiving the RMD until April 1 of the year following the year in which they turn age 73. So now you are late.
Not sure about your deposit problem. I'll page someone else @dmertz
[Edited when I realized that the rollover deadline has already passed.]
"When I tried to transfer the funds to my Roth, I was told only $8000 could be deposited."
Had you done so by the 60-day rollover dealine you could have done an indirect rollover to the Roth IRA, not an ordinary Roth IRA contribution.
Because you separated from service in 2024, both 2024 and 2025 are RMD years. You are not permitted to roll over the amount of the distribution that represents either of these RMDs. Since the deadline to complete the 2024 RMD was April 1, 2025, it's not clear if this distribution included your 2024 RMD or if that was distributed separately prior to the total distribution of the 401(k).
"Do I have till December 31 of this year to take my RMD for this year?"
As explained above, you have already received your 2025 RMD as part of the total distribution and that portion was ineligible for rollover even if you had done a rollover by the deadline. The total distribution also included your 2024 RMD if that had not previously been satisfied. The 401(k) plan should have forced the distribution of the 2024 RMD by the April 1, 2025 deadline if that distribution had not already been made. (Perhaps the total distribution actually occurred by that date.)
I edited my previous post when I realized that the 60-day rollover deadline has already passed. You have not mentioned any circumstances that would allow that deadline to be waived, so I assume that a rollover is no longer possible.
You had 60 days to put the equivalent amount of money into the Roth, that would be considered an "indirect rollover", not a contribution, and would have been perfectly legitimate even if the money spent some of those 60 days in your checking account. Unfortunately, the 60 day window has passed. If you can reasonably claim that one of these circumstances occurred which delayed you from making the the correct rollover on time, you can claim a waiver of the 60 day rule and do a late indirect rollover.
1. An error by the distributing or recipient financial institution;
2. A misplaced distribution check that was never cashed;
3. A distribution deposited and remaining in an account that the taxpayer mistakenly thought was an eligible retirement plan;
4. Severe damage to the taxpayer’s principal residence;
5. Death of a member of the taxpayer’s family;
6. Serious illness of the taxpayer or a member of the taxpayer’s family;
7. Incarceration of the taxpayer;
8. Restrictions imposed by a foreign country;
9. A postal error;
10. A delay in obtaining information from the distributing plan or IRA that was required by the recipient plan or IRA, despite the taxpayer’s reasonable efforts to obtain it; or
11. A return to the taxpayer of the proceeds of a federal tax levy on a plan or IRA.
You might have #5 or #6 and not told us, but from your story, the others don't seem to apply. You would have to decide if you want to argue #3, but I think you probably knew right away that it went into the wrong account, and you took too long to fix it.
In that case, you now have money in your checking account and that counts as a withdrawal and you have to pay tax on it. You can do anything you want with the rest of the money (such as invest it).
You can't make any contribution to a Roth IRA unless you have compensation from working (wages or self-employment profits) and even then, the maximum contribution would be $8000.
However, you might be under a misconception about the tax. If your intention was to take pre-tax money in a 401(a) and roll it over to a Roth IRA, that would be a conversion, and would be fully taxable. You would pay the same tax that you have to pay now. The difference is that your future gains would be tax-free in the Roth. Now, if you invest the money in stocks or bonds, you won't have to pay tax again when you withdraw the principle, but you will have to pay tax on any interest or capital gains. But, depending on your marital status and other income, your capital gains tax might be very low or even zero as long as you hold your assets at least one year.
You should probably see a financial planner to help you work out what to do next.
You can ignore the issue of any RMD, that would only apply if you were able to complete the rollover, which you can't. Your complete withdrawal includes your RMD for 2025 as a small part of it.
Hi Volvo Girl,
Thank You!
It was my understanding that as long as I was working full time most of the year I turned 73, I did not have to do a RMD.
I appreciate your advise.
Thanks!
Thank you for your advise.
So, I understand that 2024 RMD passed, but are you saying I do not have to worry about taking an RMD for 2025? Would you suggest that I go ahead and transfer $8000 from my checking to my Roth account today? I know it wont fix everything, but will it help some with the penalty I am facing at tax time?
Thank you,
Thank you Opus17.
The only circumstances that I can see applies in my case, is when I filled out the paperwork to withdraw my contributions, the banker who notarized the paperwork suggested that I have the funds directly deposited into either my savings or checking account, which would be more convenient for me. Not realizing after sending the paperwork off that I was not the correct way to handle this. My error for realizing I had to make the correction within 60 days.
I appreciate your help!
@Nowwhat wrote:
Thank you for your advise.
So, I understand that 2024 RMD passed, but are you saying I do not have to worry about taking an RMD for 2025? Would you suggest that I go ahead and transfer $8000 from my checking to my Roth account today? I know it wont fix everything, but will it help some with the penalty I am facing at tax time?
Thank you,
RMD is the minimum amount you must withdraw, put in your bank account, and have taxed, before you can do something else like a rollover. It is not a specific, special transaction, just a withdrawal amount. Since you withdrew your entire account, put it in your bank account and its being taxed, and you can't do any rollover (because it is past the 60 day window) you meet (and greatly exceed) the requirement. In other words, this complete withdrawal satisfies any RMD rule.
If you were eligible for rollover, the withdrawal would still satisfy the RMD rule, as long as you held that amount out of the rollover. In other words, if the balance was $100,000 and your RMD was $5000, you would have to hold out $5000 that you keep and pay tax on, and you could rollover up to the remaining $95,000. But, as already discussed, this is not a rollover situation. Your withdrew and must pay tax on the entire amount. The RMD rules simply are irrelevant.
Also, you can't contribute any money to your Roth IRA unless you have compensation from working, which means wages and self-employment profits. You said you are retired. Unless you have a part-time job or side gig that pays at least $8000 in 2025, you can't make any Roth IRA contribution. (More specifically, your contribution limit is $8000, or the amount of your wages, whichever is less. If you took a part-time job as a Walmart greeter and were paid $2000, you could contribute $2000 to the IRA. And so on.)
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