If entire 80% of an indirect transfer of pension is deposited to another retirement fund, what happens to the 20% withheld for taxes? Is tax then only on 20% not rolled?

[re4mul8]

That is, the 20% tax mandated is based on the entire $ available from the transferor & I do not have the “other resources” to make up the 20% difference to deposit to the transferee. So technically I should only be responsible for taxes on the 20% which already was taken out and considered income, yes? I wanted to do the direct transfer but missed the deadline (family matters, and poor correspondence from the transferor).

[VolvoGirl]

What kind of pension?  I don't think you can transfer a pension to another account.    Yes you will get a 1099R in January to enter.  The 20% will be a withdrawal and taxable (and a 10% early withdrawal penalty if you are under 59 1/2) and you will get credit for the withholding on 1040 line 25b.  

[Opus 17 · Accepted solution]

You can rollover a pension to an IRA.

https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

If you do an indirect rollover, where you get a check from the pension plan and deposit that in the IRA, the pension plan may be required to withhold 20%.  If you can't make up the difference, then you have a partial rollover and a partial withdrawal.  For example, if you withdraw $50,000 and there is $10,000 withheld, and you get a check for $40,000.  You deposit this in the IRA.  You now have a $40,000 rollover and a $10,000 withdrawal.  The tax on the withdrawal portion will come out around $2500 when you file your tax return.  Since you had $10,000 withheld, you will get the other $7500 back as part of your tax refund.

It may be to your advantage to make up the missing funds from other sources.  Even possibly a short term bank loan.  You have 60 days to send the missing $10,000 to the IRA to be counted as part of the rollover.  If you could borrow $10,000 at 8% for 6 months, you would pay $400 in interest, and pay off the loan when the entire $10,000 of withholding is refunded to you.  That's $400 of interest instead of $2500 of income taxes.

[fanfare]

"I do not have the “other resources” to make up the 20% difference "

If the 60-days are up, there are various ways you can qualify for a waiver of the 60-day requirement.

Google it and visit the IRS website for the details.

"Retirement plan administrators, and IRA trustees, custodians and issuers (“IRA trustees”) can now accept late rollover contributions from individuals who self-certify they qualify for a waiver of the 60-day rollover requirement " -- IRS

GIven the current state of the union. it is unlikely you would be audited for any reasonable excuse.

@re4mul8 

[Opus 17]

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@fanfare wrote:

"I do not have the “other resources” to make up the 20% difference "

If the 60-days are up, there are various ways you can qualify for a waiver of the 60-day requirement.

Google it and visit the IRS website for the details.

"Retirement plan administrators, and IRA trustees, custodians and issuers (“IRA trustees”) can now accept late rollover contributions from individuals who self-certify they qualify for a waiver of the 60-day rollover requirement " -- IRS

GIven the current state of the union. it is unlikely you would be audited for any reasonable excuse.

@re4mul8 

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Please see the actual revenue procedure and the model letter.  Being short of funds is NOT a valid reason to self-certify a waiver of the 60 day rollover rule.

https://www.irs.gov/irb/2020-45_IRB#REV-PROC-2020-46

[re4mul8]

Thank you for the info, and yours was a close 2nd best. I'm still within the 60day cutoff but realized I'd better keep moving with this. Your final remark was amusingly spot-on. 

[re4mul8]

Thank You. I'd spent a fair amt of time on the IRS website, but it was unclear regarding the fate of the $20% withheld once the 80% was rolled over. Technically I never received that 20% -- it when straight to the IRS right? [ Pretzel Logic]

But seriously, your proposal has merit. Signature loan: no. An equity loan or LOC is the only viable choice but clearing the cutoff "gate," I dunno.

Unfortunately, the transaction turned into an IDR (InDirect Rollover) -- ultimately my fault. But let's examine circumstances: 1) the plan letter dated 8/9/2025 with blank spaces where critical info was missing, 2) the 2nd plan letter dated 8/22 apologizing for the blank spaces; said letter arrived Labor Day weekend and my mis-thinking their cutoff date was 60 days (cutoff was Oct. 2nd), 3) a power outage surge which fried 1/2 of house ckts with 220V (vs 110), 4) youngest son back to college, ka-ching, 5) oldest daughter's late September wedding, ka-ching, and, 6) mom's 95th. Oh, and me working FT. 

[Pls pardon typos. Never buy a refurbished laptop.]

[Opus 17]

@re4mul8 

Unfortunately, you did constructively receive the missing 20% since it was sent to the IRS in your name and is to your benefit, to offset any taxes and possibly be refunded. 

 (Do you have a 401k or 403b?  If that plan offers loans, you may be able to borrow up to $50,000 in just a few days with very little paperwork.)

Also, even if you can't find the whole 20%, any amount that you rollover in the 60 day window will help reduce the taxes and keep more of your money in the IRA for your retirement. 

Also note that if you are under age 59-1/2, there is an additional 10% penalty for early withdrawal (unless you are also permanently disabled).  I did not mention this before because I assumed that, if you have access to your pension as a lump sum, you are either past that age or disabled so the 10% penalty won't apply.  But it might be important for other readers. 

If you look at the revenue procedure linked above, you will see a list of reasons and a model letter you can use to self-certify an extension to the 60 day rollover window.  Note that the IRA custodian is not required to accept your self-certification.  So if you want to try and borrow the missing 20% and deposit it as a late rollover, you should ask them first if they will accept it.  If they will, then you have to decide for yourself whether your situation meets any of the allowable circumstances.  If audited, the penalties will be on you, not the IRA custodian.

Bear in mind that the normal statute of limitations for audit is 3 years.  So if this happened in 2025, the IRS would have until April 15, 2029, to audit your return for failing to treat the money as a withdrawal and paying income tax.  However, if you put the 20% back in the IRA and the extension to the 60 day limit is denied, the money will be treated as a contribution.  And if it is more than $7000 (or $8000 if over age 50), or is more than your compensation from working, it will be considered an excess contribution that should be reported on form 5329.  And as long as you have not removed the excess contribution, there is an ongoing requirement to  file form 5329 and pay a penalty every year that the excess remains in the IRA.  So the statute of limitations essentially does not run out until 3 years after the IRA is spent out and closed, or 3 years after the excess contribution is removed.   While it is true that most people are never audited, it can still get really bad if you are one of the unlucky few.  So if you want to self-certify an extension to the 60 day window, make sure you can support your reasons.