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March 6, 2009

How can I rollover amount withheld for taxes

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How can I rollover amount withheld for taxes

Question I requested $100,000 in http://retirementdictionary.com/definitions/eligiblerolloverdistributionerd rollover eligible assets from my http://retirementdictionary.com/definitions/401kplan 401(k) account, but I had the amount paid to me. My employer withheld 20% for federal taxes, so I received only $80,000. I want to rollover the entire $100,000. Should my employer refund the amount they withheld for taxes to me?

Answer

No. Generally, when rollover eligible assets are distributed from a http://retirementdictionary.com/definitions/qualifiedretirementplan qualified plan, http://retirementdictionary.com/definitions/403bplan 403(b) or http://retirementdictionary.com/definitions/403bplan 457(b) plan to the http://retirementdictionary.com/definitions/participant plan participant, instead of as a http://retirementdictionary.com/directrollover direct rollover to an eligible retirement plan, the payer must withhold 20% for federal income tax, and if applicable, any state withholding tax. This amount that was withheld should be remitted (by the payor) to the federal government as an advance payment of taxes on your behalf. If you want to rollover the entire http://retirementdictionary.com/definitions/distribution distribution amount of $100,000, you will need to make up the amount withheld for taxes out of your other savings. Alternatively, you may rollover only the $80,000 and treat the $20,000 as a regular distribution, which must be treated as ordinary income on your tax return; if you were under http://retirementdictionary.com/definitions/59andhalfage age 59 ½ when the distribution occurred, you will owe the IRS an http://retirementdictionary.com/definitions/earlydistributionpenalty early distribution penalty of 10% on any taxable portion that was not rolled over unless an http://retirementdictionary.com/definitions/earlydistributionpenaltyexception exceptionapplies. The withheld taxes will either increase your tax refund or reduce taxes you owe when you file your tax return for the year. The rollover must be completed within 60-days of you receiving the distribution. The amount that is timely rolled over will be tax and penalty free.

Question answered by http://deniseappleby.com/ Denise Appleby

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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