1 response

  1. william
    April 16, 2012

    Here’s a dandy for you. I took a $10k loan on my 401K to help finance the purchase of our first home. I was assured by customer support that if I left that position I’d still be able to repay the loan monthly, they provide a coupon book. This was important since I knew I was going to be leaving that company within two months. And I did. And the load came due, I was not able to repay it in installments. And I did not have the lump sum to pay it back, but it got us our house and I was ok with the penalties. Since this happened in the summer of 2010 I wouldn’t have to worry until 2011 taxes. Early in 2011 I decided to roll it over to an IRA just to be done with that company. Finding out that I couldn’t do a direct rollover because of the defaulted loan (according to the plan supposedly), I opted for a direct deposit, knowing the next day it would be deposited into my IRA. And it was. Afterall I have 60 days to deposit it into a qualified plan. The problem was since this was technically a distribution, there was an enormous amount of taxes withheld, so the direct deposit was roughly 30% of the actual amount of the distribution (don’t forget the 10K loan). I didn’t think twice about it figuring it would all even out at tax time. Big mistake. Not only is all that withholding gone as if it never existed, and even though I deposited every single dime of what was “rolled over” to me, I’m now paying regular income tax on the entire amount. And apparently there’s no recourse. Even though I’m essentially paying taxes on this distribution twice.

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