I had a client ask me just now about the "window" of time they have to get a new 401K or IRA like 90 days--wants to use the money for a short time. My first thought was you get the money, you pay tax. But from all the research I did this year for another client with an annuity, I'm thinking there is some time to get a new "qualified" plan. Any thoughts or guidance? Will research soon, thanks!!!!!
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The magic number is 60 days, but I tell clients it's very risky to push the limit."The only function of economic forecasting is to make astrology look respectful" - John Kenneth Galbraith -
Ok, so far my research is he has 60 days, will have to make up taxes withheld, can put whole amount in new IRA of employer plan and avoid penalties, right?Comment
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Sorry John, just saw your post, after I entered mine, we must have been posting at the same time!!! Thanks!!!!!Comment
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Confused!
I'm confused where it says "rollover" in 60 days. Can they actually get the money and put that same amount in an IRA and that's called a "rollover"??????Comment
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401(k) or IRA?
Are you asking about a 401(k) or an IRA or both? If a 401(k) read the plan. He may not be allowed to take it out of a 401(k) and put it into an IRA if still employed at that employer. However, he may be allowed to take out a loan from his 401(k) and repay himself over time. I agree the deadline is 60 days to replace funds into the same or different IRA. Find out how long it takes to process the funds when they arrive in the new IRA to have enough time. Fill out a W4-P to have no withholding or make up the w/h from other funds or have a distribution in the amount of the w/h. What is he trying to accomplish? Give us more details.Comment
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He's trying to use the money short term from a previous employer and put it in an IRA or something within the 60 days---sound crazy to me---Comment
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60 Days
Well, if he's left that employer, then he can definitely take out his 401(k) and put into an IRA within 60 days. But, he's safer using a trustee-to-trustee transfer and never having the check pass through his hands. Suggest he work with his friendly, local broker to make sure an IRA is open and complete the paperwork for the transfer.
If he already has the check -- make sure he gets it into an IRA or his new employer's plan within the 60 days, and sooner if processing time is needed, has to go through home office in Topeka or something. And tell him to keep copies of EVERYTHING to be able to show the paper trail from a qualified retirement plan into an IRA within 60 days. If he already had withholding, he has to make that up from his own funds or that amount will end up being a distribution. Warn him that he WILL get a Form 1099-R from his old plan as they have no way of knowing he rolled it over into an IRA, and that he MUST bring that -- and ALL documentatin -- to you when you prepare his tax return so you can report it correctly as going into an IRA.
If you'll have trouble with his indirect rollover, let us know when you prepare his return.
See a brief newsletter on my web site (DollarsSense.com) for an article that you or your client can read as an overview. For instance, if 60 days ends up being on a weekend, there is NOT an extension to the next business day.Last edited by Lion; 05-02-2011, 12:38 PM.Comment
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If you are withdrawing the funds and taking control of the money, the trustee will withhold 20% for taxes. To avoid penalties, the tax payer has to then deposit 100% in 60 days which means they have to come up with that 20% out of their own funds (getting a refund later). If they see this 60 day window as a great way to get hold of some cash they need, they generally won't have the 20% in cash when it comes time to deposit into an IRA.
Retirement accounts are a horrific way to come up with quick cash. JMOComment
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