L1: 401k WithdrawalI recently made the decision to cash out a portion of my rollover 401k to pay off some expensive debt yet just recently learned of the 72(t) provision. Is it possible to ‘undo’ this withdrawal so that I can now move the funds to an IRA to take advantageof the72(t) rule?2009-02-26 22:58, By: Gino, IP: [126.96.36.199]
L2: 401k WithdrawalIf you received the funds within the past 60 days, you can roll them over to an IRA, however you will have to replace the mandatory 20% withholding that I assume has occurred. If you cannot replace the withheld amount, that portion will itself be subject to ordinary income tax and the 10% penalty unless you have a penalty exception.
I am not sure why you refer to the 401k as a “rollover 401k” since that term usually describes funds that have already been rolled from a 401k to an IRA. With respect to the distribution you have received here, if this plan was from a company from which you separated in the year you turned 55 or later, it will not be subject to penalty, and that includes the withholding if you cannot replace it. Also, since you still have some of the 401k plan in place, this exception would also apply to the rest of the balance if you qualify for the age 55 exception, and you may not need a 72t plan IF the 401k allows for flexible distributions according to your needs. Since you were already allowed a partial distribution, this is a good sign that the plan may offer options for further distributions.
2009-02-27 00:43, By: Alan S., IP: [188.8.131.52]