Too late to fix a 401(k) withdrawal? Or escape taxes?

Too late to fix a 401(k) withdrawal? Or escape taxes?
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Hey, Community folks, I’m hoping to get insight into this issue:

My 24-year-old daughter just switched jobs. Her previous employer said that it would be taking an amount out of her 401(k) every day she left it there because she’s no longer an employee. That sounds pretty fishy, but let’s leave that aside for now because in response she took a full withdrawal of her funds. Taxes were withheld and she received a check.

Certainly, that’s not ideal — a rollover to a new 401(k) would be better, but her new job has not yet provided information about any sort of workplace retirement savings plan.

She’s deposited the funds into savings for now. Is it too late to put them into an IRA to avoid that tax hit? Or is there a grace period for getting into a new 401(k)? I’m hoping it’s not too late to take action and get withheld taxes refunded!


@khinson If it hasn’t been 60 days she can. But with taxes already paid sounds like a great time to go Roth!


@khinson@des is right that you have 60 days to get the money into a retirement account.

There is a weird thing to consider: if you don’t put the total dollar amount of the original account into another retirement account, then the money that was withheld for taxes is considered a withdrawal and you will owe a 10% penalty. Weird but true: That money that’s withheld for taxes is counted both as “taxes paid” as well as a withdrawal. So whatever account you end up choosing, it makes sense to try to deposit all of the balance that was originally withdrawn.


OK, great, thanks @des and @acoombes! She’ll be relieved to hear she can still remedy the situation.

She was feeling pretty sheepish that she didn’t ask for advice before just taking the money, and feared that she had no recourse.

But, on the up side, she’s only 24 and has some savings — and I’ve definitely emphasized that starting early is key to success!