My wife just started a new job late January. In trying to roll her 401K from old employer apparently she filled something our incorrectly, and was just sent a check for her 401K with a large chunk withheld as taxes. Calling the 401K that she was rolling from, they cannot do anything, taxes have been filed and sent off they say.
Is there any strategy or anything that can be done to minimize the damage from this? She is 40 if that matters any. That large a hit to retirement savings is very discouraging at this stage.
It’s worse than you think. That’s an estimated tax withholding, and doesn’t even correspond to the actual amount she will owe. I’m not sure what the process is, but she should probably escalate the matter with someone higher at the old 401k administrator.
Oh dear, what a mess.
You’ll need some professional help, but off the top of my head:
I think it can be fixed by opening a rollover account with a broker and depositing the full amount of the distribution including the amount sent off for taxes even if you have to borrow some to do that. You can get the tax refunded in 2024 when you file your 2023 taxes,
I you have a local office for Schwab or Fidelity you may find someone there that can help.
This is time sensitive. From the date of distribution a rollover must be completed within 60 days
Rolling over to a IRA:.
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Fuzz has it right. You have 60 calendar days to complete a transfer to an IRA.
You can transfer the full 401K amount, including the amount withheld for income tax and 10% Early Distribution Penalty.
The old 401k administrator must withhold 20% of the distribution for tax and penalty.
An IRA custodian such as Schwab, Fidelity, Vanguard etc. will help you get this done right. Do not delay.
Complete the transfer of the 401k amount in 60 days there will be no tax or penalty.
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