401K cashout, changing of the mind

[dnjpowell]

Hi, just came across the board and after lots of reading I may be having a changing the the mind.

Here's the deal. Changed jobs recently and had about 11,000+ in the 401K. Well have some debt I wanted to pay off so without to much thought or preplanning I sent in the form for a total cashout. (can anyone say dumb**s). So I did some reading here and after doing the math it, I figure its not worth it. Here's the thing out of the 11,000+ they kept the 20% or so for tax. If I do put this money into a legit IRA, what happens to the money they kept? Do they have to send it to me since I am complying? Do they still send it to the IRS? Do I have to send them the info on the IRA and let the send it straight to them?

Thanks for any help.

[cooliemae]

If you had rolled the 401k directly(i.e. bank to bank transfer) into a ira plan, then you wouldn't have the penalty. But since you took the money out of the 401k yourself you are libel for the tax on the $11,000 (considered ordinary income). The IRS gets the 20%. Sorry.

[humandraydel]

Unfortunately, the money has already gone to the IRS. However, you CAN get it back, but that means you have to pay the difference out of your pocket, and then when you file taxes next year you'll get the money back from the IRS. Unfortunately, if you don't have the few thousand dollars on hand to put into the IRA, the IRS won't consider it a full rollover and you won't get your money back.

[disneysteve]

Keep in mind that you have a limited time to do the rollover. I believe it is 60 days. humandraydel is correct that you can replace the money from your own funds, so you could do a rollover IRA for the full $11,000 if you have the money available. But if more than 60 days has passed, you are out of luck.

[StanFatherof3]

These folks are right. Basically, you'd have to write a check for the amount of money withheld from your IRA check to your new IRA. That way the amount you rolled into the IRA will be the entire amount of the old account.

Disneysteve is also right that you have a limited amount of time to get this done. You should call your IRA broker right away.