How to correct a Deposit from 401k mistake

Forum|Forum|11 months ago
June 19, 2025
2 replies
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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.

Not A Product Question

Bsch4477

Level 15

If you didn’t contribute the funds into another retirement account within 60 days you will have to pay tax on the withdrawal.

VolvoGirl

Level 15

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.

NowwhatAuthor

Level 2

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!

VolvoGirl

Level 15

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