Ask Mary Beth: Money Q & A |
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Rolling over 401(k) into IRA
Can my husband roll over his 401(k) funds into his IRA now that he has left
his former employer?
Mary Beth answers:
Yes. Your husband can roll over all or part of his 401(k) to an IRA. His
best bet is to have his former employer transfer the funds directly to his
IRA. If the check is issued to him directly, he may have problems: while
technically your husband has 60 days to roll over the funds into an IRA
tax-free, his employer would be required to withhold 20 percent of his
retirement account for taxes if the check is issued directly to him. And
he would still be required to roll over the full amount or be taxed on the
missing 20 percent, which would be treated as an IRA distribution. That
means he would have to dip into his own pocket for the missing 20 percent
or pay taxes on it.
It's best to avoid all these confusing and costly problems by having his
former employer transfer his 401(k) funds directly to his IRA. That way,
there will be no tax consequences until he withdraws the money in
retirement. Then it will be taxed at his regular income tax rate.
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