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_Nuba_ t1_jad3u1b wrote

This is an indirect rollover. You need to redeposit the whole distribution amount within 60 days despite taxes being taken out (If your balance was 10,000 but your check is 8,000, you still need to deposit 10,000). Then you should receive the taxes that were withheld in your tax refund for next year.

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iguesswhatevs OP t1_jad6mvy wrote

What if I just deposit that as a rollover into my personal Roth IRA? People are saying I still need to pay more penalties which I don’t understand. If the balance was 10k and the check is 8k, then I already paid my federal taxes. What other penalties do I still owe??

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acidwxlf t1_jado8p0 wrote

401k has a 10% early withdrawal penalty. So you'd pay taxes at the base rate (and may owe more, they don't know what your total income will be) so in the numbers you gave as an example you were taxed 20%, but your tax obligation may be 24% for instance, so you'd owe an additional $400 in that case PLUS the early withdrawal 10% penalty on the amount not rolled over if you don't roll all the money into a tax deferred account. So again using 2,000 in this example you'd owe $200 in penalties. In total you'd owe $2000(base tax)+$400(actual tax rate difference)+$200(early withdrawal penalty)=$2600. I think you're confusing taxes with penalties when they're two separate things and additive in this case. If you put the gross $10,000 back into a trad IRA or 401k then you owe no taxes and no penalties, you'll be refunded come tax time.

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shadow_chance t1_jadv2pk wrote

You don't need to pay more penalties most likely. You just need to do the indirect rollover correctly.

You can contribute to a Roth IRA assuming you have earned income but this has nothing to do with your 401k check.

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