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.

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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!

Opus 17

Level 15

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,

@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.)