The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: FarmerPete on December 29, 2014, 08:00:32 AM
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My wife got a check in the mail from one of her old employer sponsored 401ks. Apparently it only had just over $100 in vested balance, and they liquidated it for her. Kind if annoying, since it was held at Fidelity and she has a personal Fidelity IRA... Anyways, so now I've got this check. I was already planning on maxing out my wife's IRA this year. If I put $5500 into her IRA, will that some how cancel out the $100 check? Can I put $5600 into her IRA? Is there some kind of paperwork I need to fill out, or can I just transfer $5600 into her IRA like I would normally do $5500? I know that paying the 10% penalty and income tax on $100 isn't a big deal, but I'd rather avoid paying fees if reasonably possible.
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How long ago did they liquidate it?
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http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Rollovers-of-Retirement-Plan-and-IRA-Distributions
If it's been less than 60 days, then I think you do have a chance of contributing the $100 via rollover in addition to the $5500 yearly contribution.
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Also, keep in mind you have to roll the entire withdrawal into a new IRA.
Sometimes, when they send you a check to close out a retirement account, they withhold some of the balance for taxes - so the balance of the old 401k could have been $111, but they only sent you $100, and withheld $11 for taxes.
You're responsible for re-depositing $111, not $100, within 60 days.
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Also, keep in mind you have to roll the entire withdrawal into a new IRA.
Sometimes, when they send you a check to close out a retirement account, they withhold some of the balance for taxes - so the balance of the old 401k could have been $111, but they only sent you $100, and withheld $11 for taxes.
You're responsible for re-depositing $111, not $100, within 60 days.
The check and statement didn't have any details on withholding. The IRS guidelines indicate that 20% is normal. I'm guessing that based on the small sum, they decided it wasn't worth it. I'll certainly double check on that. When you say, "New IRA" are you implying that I need to open a brand new IRA, or would my wife's current personal IRA with Fidelity be sufficient?
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Looking at my wife's account online, it looks like they didn't deduct any taxes. The check was for the full $109.11. So to get this straight, I should transfer $109.11 into my wife's personal IRA immediately. This will eliminate any penalties/tax. I can then still make up to $5500 until April 2015 into the same account. Correct? I don't need to fill out any extra paper work so that Fidelity realizes this extra $109.11 is a roll-over and not a regular contribution?
Distribution Type: Lump Sum
Creation Date: 12/22/2014
Tax Reporting State: MI
Tax Year: 2014
Tax Form: 1099R
IRS Code: 1
Gross Amount: $109.11
Total Taxable Amount: $109.11
Total Non-Taxable Amount: $0.00
Net Unrealized Appreciation: $0.00
Ordinary Income: $109.11
Amount Eligible for Rollover: $109.11
Amount Rolled Over: $0.00
Net Amount of Check: $109.11
Deduction Amount: $0.00
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Looking at my wife's account online, it looks like they didn't deduct any taxes. The check was for the full $109.11. So to get this straight, I should transfer $109.11 into my wife's personal IRA immediately. This will eliminate any penalties/tax. I can then still make up to $5500 until April 2015 into the same account. Correct? I don't need to fill out any extra paper work so that Fidelity realizes this extra $109.11 is a roll-over and not a regular contribution?
Distribution Type: Lump Sum
Creation Date: 12/22/2014
Tax Reporting State: MI
Tax Year: 2014
Tax Form: 1099R
IRS Code: 1
Gross Amount: $109.11
Total Taxable Amount: $109.11
Total Non-Taxable Amount: $0.00
Net Unrealized Appreciation: $0.00
Ordinary Income: $109.11
Amount Eligible for Rollover: $109.11
Amount Rolled Over: $0.00
Net Amount of Check: $109.11
Deduction Amount: $0.00
You do have to let fidelity know that it is a rollover.
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Amount Eligible for Rollover: $109.11
Net Amount of Check: $109.11
The two lines above, combined with your wife actually putting $109.11 into her IRA as a rollover in a timely manner, should be all the documentation you need to avoid 2014 taxes.
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And you'll probably need to reflect the "withdrawal" and "rollover" on your tax return. If you get a 1099 (1099-R??) on this amount you'll need to reflect on your tax return and then account for it as a rollover.
IIRC there's a line on the tax return for "distributions" and then a line for "taxable distributions". You show it as a "distribution" but not as a taxable one. (I may have the terminology messed up because I'm too lazy to pull my tax return. But I know for sure if you get a 1099, you need to account for it.)