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Cretin90
Apr 10, 2006


Probably. Feel free to make fun to help me learn my lesson to not procrastinate.

In mid-July I initiated a “direct” rollover wherein my previous 401k sent me a check addressed to my new 401k, FBO me. When I attempted to get the roll-in at the new 401k to get it going, it said I was missing a “letter of determination or qualification.” I had no idea what to do with this so I said “meh, I’ll deal with it later, what’s the rush?” Turns out there is very much a rush, of specifically 60 days, before the IRS decides it is a distribution and assesses income tax along with your standard 10% early withdrawal penalty.

I just found out about the 60 day rule and am now ten days outside of it. On Monday I plan to call the new 401k and figure out exactly what they need from me to get the check sent in there, and if they expect some letter, how I’m supposed to get it. Depending on how hosed people here say I am, I will probably also reach out to a personal tax accountant.

What happens now? Do I go ahead with the rollover anyway, even though I’m getting burned on income tax and an early withdrawal penalty? Can I deposit it, or is it effectively post tax money for me to go invest in a Roth IRA (subject to annual limit of course) or do whatever with?

My last 401k rollover was direct company to company and was so much easier…

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Gazpacho
Jun 18, 2004

NUKE THEIR ASS
TAKE THEIR GAS


Slippery Tilde

The IRS has provided guidance on circumstances in which it can waive the 60-day limit. Simple neglect by the distributee is not one, but an error by the distributing company is. The distributing company is required to provide notice to you of the 60-day limit (Pub. 560 page 19). Did it?

I do not suggest going ahead with the transfer while there are open questions about its legitimacy, although you may assemble any necessary paperwork.

Gazpacho fucked around with this message at 18:59 on Sep 25, 2021

Cretin90
Apr 10, 2006


Gazpacho posted:

The IRS has provided guidance on circumstances in which it can waive the 60-day limit. Simple neglect by the distributee is not one, but an error by the distributing company is. The distributing company is required to provide notice to you of the 60-day limit (Pub. 560 page 19). Did it?

I do not suggest going ahead with the transfer while there are open questions about its legitimacy, although you may assemble any necessary paperwork.

Reading through the paperwork that was provided to me, the 60-day rollover rule is referenced in the fine print at the end of the packet, so they are covered. What now - is this now a “cash out” distribution and I owe taxes + 10% early fee on it with next year’s taxes? I’ll talk to an accountant, just trying to get an idea.

Gazpacho
Jun 18, 2004

NUKE THEIR ASS
TAKE THEIR GAS


Slippery Tilde

You should talk to an accountant and you should also talk to the distributing company to find out whether the check is still good for the amount shown, or they have withheld tax.

VelociBacon
Dec 8, 2009



In Canada you can gently caress this kind of thing up once and the CRA (our IRS) will forgive you so long as you don't do anything dumb like buy bitcoins with the money while it's between accounts. I have to imagine people in the states gently caress this up also all the time and they probably have some forgiveness thing.

Cretin90
Apr 10, 2006


Gazpacho posted:

You should talk to an accountant and you should also talk to the distributing company to find out whether the check is still good for the amount shown, or they have withheld tax.
Call scheduled, I’ll update here in case anyone finds this stuff useful.

VelociBacon posted:

In Canada you can gently caress this kind of thing up once and the CRA (our IRS) will forgive you so long as you don't do anything dumb like buy bitcoins with the money while it's between accounts. I have to imagine people in the states gently caress this up also all the time and they probably have some forgiveness thing.

I hope so, it’s not the end of the world - if worst comes to worst and it’s just a full on early distribution, I will pay my 10% early withdrawal fee (about $14k, a lot of money to burn but really not world ending in the overall context of retirement savings) and income tax on the rest of it and consider it a lesson learned to not be a procrastinating moron.

I’d just rather not since it’s the totality of my 401k retirement savings after eight years in the workforce lol.

E: yeah to clarify it’s not like I’ve done anything with it, I’m not sure I can even deposit the check, it’s addressed to the new 401k institution FBO [my name].

Cretin90 fucked around with this message at 16:24 on Sep 27, 2021

Cretin90
Apr 10, 2006


Update:

I spoke to both an accountant (“enrolled agent”) and customer service for my destination 401k yesterday.

Enrolled agent said we were likely to have to go down the waiver claim route which is potentially expensive and unlikely to succeed (given the blame here is squarely on my shoulders). However, once I made sure she understood that this was a direct rollover with a check addressed to the financial institution FBO me, not directly to me, she changed her tack and said this would likely be our way out if the transaction even gets disputed. She also noted that providing evidence that I took action to correct this situation immediately after finding out about the 60 day rollover rule would help my hypothetical case with the IRS (e.g. calling the accountant and customer service on Monday morning after finding out about this on Friday night).

So at that point I reached out to the destination 401k and confirmed with them that using their handy app I could just upload a photo of the check along with the requested documents and it would be processed within several business days. I also asked her if it was likely there would be any issues with this transaction and she said no, since the check was addressed to the destination 401k, not me, I was effectively acting as a “conduit.” At that point I reached out to the original 401k to get a distribution statement since one was not automatically provided and uploaded it. This one has a happy ending, unless something changes in which case I’ll post here.

Went into a bit more detail here in case someone runs into something similar (don’t) and is searching the forums for advice in 3 years.

Tl;dr try to get your 401k institutions to initiate your rollover directly between them so you don’t have to deal with a check. If you do have to do a check, make sure it’s a “direct rollover” addressed to the designated institution, not you, since this provides a CYA if you are delinquent. Pick up the phone and call rather than procrastinating- my call with the agent was free and she was glad to help. Read the fine print and know the deadlines.

BraveUlysses
Aug 7, 2002



I'm in the middle of doing this too, what did you do about the letter of determination? my 401k was through fidelity and I have no idea where to find this info

80k
Jul 3, 2004

careful!

I feel like your worries should have been nipped way earlier. The 60-day rule only applies to indirect rollovers. Yours was direct… you never had a chance to hold that money for a minute, let alone 60 days.

It is normal for 401k’s to send you a check that you have to forward, but if it is written directly to the other institution fbo you, it is exactly the same as if it was electronically transferred, regardless of how long it takes.

Gazpacho
Jun 18, 2004

NUKE THEIR ASS
TAKE THEIR GAS


Slippery Tilde

I suspected that and would have said it if I had found it laid out somewhere in IRS guidance for 401(k)s specifically, but I couldn't.

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80k
Jul 3, 2004

careful!

Gazpacho posted:

I suspected that and would have said it if I had found it laid out somewhere in IRS guidance for 401(k)s specifically, but I couldn't.

Here's a link directly to an IRS guideline: https://www.irs.gov/retirement-plans/verifying-rollover-contributions-to-plans

quote:

The plan administrator should take reasonable steps to evaluate whether these conditions are met. If the funds are coming directly from the old plan or IRA trustee – for example, via a check made out to the new plan – then there is no 60-day requirement. If the funds were paid to the individual, the plan administrator should ask the individual to certify that the distribution was received not more than 60 days before the date of the rollover.

They really just don't want people using it for a short term loan where they actually touch the money.

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