So my old job withdraw my 401k and send me a check. What happens after that like will I get penalized upcoming tax season or can I put that money towards my new job 401k??? Please help.
Accountant · Slidell, LA · Member since 2019 · 382 posts · 272 votes
6y
@S Lord As @Anthony Wick say, you need to deposit it (or equivalent funds) into a rollover IRA within 60 days of the date the check was issued. If they withheld any taxes, then you will need to deposit an amount equal to the tax deduction into your IRA as well. Otherwise, you will pay penalties and taxes on the tax withheld.
Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
6y
@S Lord
You'll need to make a decision fast (within 60 days?). You should google it. Otherwise, it will trigger a distribution, complete with taxes and a 10% penalty. I would open a Vanguard IRA and place it all into VTSAX.
Accountant · Slidell, LA · Member since 2019 · 382 posts · 272 votes
6y
@S Lord As @Anthony Wick say, you need to deposit it (or equivalent funds) into a rollover IRA within 60 days of the date the check was issued. If they withheld any taxes, then you will need to deposit an amount equal to the tax deduction into your IRA as well. Otherwise, you will pay penalties and taxes on the tax withheld.
Do a 60- day rollover with a custodian of choice (TD Ameritrade, Fidelity for traditional investments or to a Self Directed Custodian that will allow checkbook controlled ie RE)?
Investor · Wakefield, MA · Member since 2019 · 31 posts · 73 votes
6y
You can roll it over to your new 401k, roll it over to an IRA, or take the distribution. If you rollover into a like 401k or IRA (i.e. Roth to Roth or traditional to traditional) you will highly likely not pay taxes. You should confirm this with your broker though (e.g. Vanguard, Fidelity, etc.). If you take the distribution, you pay taxes plus a penalty for early withdrawal.
If you decide to rollover, my recommendation would be to ask a financial advisor what type of fund or ETF would give the best tax advantages as well as the right portfolio for your age. Other people have mentioned putting into a total stock index fund, which does limit some risk since your money is spread across the stock market. However, there are two caveats: 1) portfolio theory says that you should balance stocks with some bonds and other more conservative investments (the ratio to be determined by your age), and 2) some funds/ETFs make more sense in terms of taxes for traditional 401ks/IRAs than for Roth and vice-versa (this is called tax optimization).
Rental Property Investor · New Braunfels, TX · Member since 2018 · 141 posts · 103 votes
6y
@S Lord
You will be better off in the long run to manage it yourself from now on instead of rolling it into your new 401K. Your new 401K might have limited options. As others have suggested, put it into something safe for now and then educate yourself on what’s best for the future for you and your family.
Regarding taking a distribution from a 401k plan and then paying back within 60 days: the issue here is that there is a 20% withholding requirement so if you distribute $10,000 you will receive $8,000 (since 20% is withheld) but you will need to deposit $10,000 within 60 days so you are effectively providing Uncle Sam with an interest-free loan equal to $2000 since you won't be able to recoup those funds until you file your taxes.