Janitor Bob Posted February 27, 2013 Report Share Posted February 27, 2013 Client withdrew money from her 401k twice during 2012. $10,000 in August then another $10,000 in December. She heard from a friend that if she would deposit that withdrawn money within 60 days from withdraw date, she would NOT have to pay taxes or penalty on the withdraw. Is there any truth to this? These were not loans from her 401k...they were withdrawals. If there is truth to what she heard it is a mute point for the August withdrawal, but the December wthdrawal was on 12/31/12....So she thinks she has until 03/02 to deposit the last $10,000.00. Has anybody heard of this? Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted February 27, 2013 Report Share Posted February 27, 2013 I think they are confusing the rules. There is a 60 day rule for transfers when the taxpayer takes the cash from one plan and deposits it into another plan. But I am not aware of a 60 day rule to replace funds that were withdrawn early. Tom Hollister, CA Quote Link to comment Share on other sites More sharing options...
ILLMAS Posted February 27, 2013 Report Share Posted February 27, 2013 The money has to be withdrawn as a loan, there is a 60-day grace period for 401K and IRA accounts, if the taxpayer fails to pay it back in full or partially, then taxpayer would recieve a 1099R and would be subject to the 10% penalty. And what her friend told her is not true. 60 Day Loan Do you need a short term loan? The IRS allows a person to withdraw money from their 401K or IRA tax and penalty free providing that amount is repaid within 60 days. This is not the IRS being kind. This rule is designed for those who are moving their retirement accounts to another financial institution. They assume that it could take up to 60 days to get everything set up once the person receives a check from their old fund. Again, though, keep in mind that while this could be used as a loan, it won’t happen quickly. It could take months for your old retirement provider to process your request. - See more at: http://www.savingtoinvest.com/2010/09/how-to-withdraw-money-early-from-your-401k-or-ira-without-paying-a-penalty.html#sthash.rEkZ29fy.dpuf Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted February 27, 2013 Report Share Posted February 27, 2013 The same 60 day rule applys to the withdrawal of funds as well. Document the date it was taken out, and the date it is put back. She will get a 1099R for the withdrawal which must be included on the 2012 return. If she replaces it before you do the return, put the taxable amount in as $0 and the amount replaced as "rolled over." She WILL get a CP2000. That is where your documentation comes in, to respond to it. Have had several of these situations. Quote Link to comment Share on other sites More sharing options...
jainen Posted February 28, 2013 Report Share Posted February 28, 2013 >>she has until 03/02<< "Within 60 days," NOT "by the 60th day." The 60th day after 12/31 is March 1, so she had best put the money back tomorrow--assuming the 401(k) plan will even accept a rollover, which is not particularly common. Quote Link to comment Share on other sites More sharing options...
michaelmars Posted February 28, 2013 Report Share Posted February 28, 2013 >>she has until 03/02<< "Within 60 days," NOT "by the 60th day." The 60th day after 12/31 is March 1, so she had best put the money back tomorrow--assuming the 401(k) plan will even accept a rollover, which is not particularly common. curious, if the 401k doesn't allow the repayment, can she put it into an ira within the 60 days? Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted February 28, 2013 Report Share Posted February 28, 2013 curious, if the 401k doesn't allow the repayment, can she put it into an ira within the 60 days? Yes Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted February 28, 2013 Author Report Share Posted February 28, 2013 If she puts the money into an IRA, she would get a deduction for that, but still have to pay taxes and penalty on what she withdrew...correct? Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted February 28, 2013 Report Share Posted February 28, 2013 If she puts the money into an IRA, she would get a deduction for that, but still have to pay taxes and penalty on what she withdrew...correct? If within the 60 day window, it is treated as a rollover. No tax or penalty. Same process on the tax return. 1 Quote Link to comment Share on other sites More sharing options...
jainen Posted February 28, 2013 Report Share Posted February 28, 2013 >>Client withdrew money from her 401k twice during 2012<< You know, we haven't talked about HOW she managed to get her money out of the 401(k). Other than some form of terminating employment, about the only way is for hardship, defined as various circumstances of immediate and heavy financial need. It's only for real hardship, because it is expensive, subject to penalty as well as tax. And you can't change your mind either--Pub 575 page 27 says, "An eligible rollover distribution is any distribution... except... Hardship distributions." Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted March 1, 2013 Report Share Posted March 1, 2013 If she puts the money into an IRA, she would get a deduction for that, but still have to pay taxes and penalty on what she withdrew...correct? No, JB, no deduction for it, no tax or penalty on it, it's just a "rollover' for tax purposes. 1 Quote Link to comment Share on other sites More sharing options...
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