Ted's Table

TB: You must report only the amount that was refunded as taxable income. You should retain all your records so that you will be able to show the IRS exactly what happened in the event of an audit.

TB: The answer to your question is yes, but it's likely to require some patience and effort.

I recommend proceeding as follows. Submit a written request to the human resources director of your company. In it explain your situation and request a restoration of the money you have lost. Include in the letter that you will contact the Department of Labor and/or retain an attorney to help you if the bank refuses to restore the amount you have lost in a timely manner. You may contact the Department of Labor by calling 800.998.7542. You will need to contact some attorneys in your area to find one who is knowledgeable about this subject.

TB: If you roll the entire untaxed portion directly to an IRA, your employer shouldn't withhold any taxes. The employer is required to withhold taxes only when a participant receives a distribution directly from the plan. So, the key is to not take your taxable money but to open the IRA in advance and to instruct your employer to transfer the entire taxable distribution to this account. This is known as a trustee-to-trustee transfer. The money you roll over directly to the IRA will be taxable as you withdraw it from the IRA.

Any money you have in the plan on which you have already paid federal income tax must be distributed to you. No taxes should be withheld from this amount since you have already paid the applicable taxes.

TB: A problem you will face if you leave your employer prior to age 55 is the 10% penalty tax that applies to early distributions. It will be necessary for you to structure the distribution from your 401(k) and IRA as an "annuity" stream of income in order to avoid this penalty tax.

However, most 401(k) plans don't permit this type of distribution. If your plan doesn't permit equal, periodic distributions, you should roll the entire amount directly into an IRA. Before you do this, discuss with the financial organization where you intend to place the money and exactly how this will work.

TB: The answer to your question probably is yes. Legally 401(k) plans aren't required to distribute the money accumulated until retirement age. Most employers want to get rid of the money former employees have accumulated so they permit earlier distributions. Your husband probably was a participant in a plan that updates the value of participant accounts only at the end of each plan year. Distributions from such plans generally aren't permitted until after this updating process is completed. This usually takes six to eight weeks after the end of the plan year. The amount distributed is the value as of the December 31 year-end. Your husband won't receive any investment gains or losses from December 31 to the date his benefit is paid.

This arrangement is legally permissible so the only thing you can do is wait.

TB: Legally a participant may withdraw any amount he wishes between the ages of 60 and 70 without having to pay the early distribution penalty tax. Any such distributions won't trigger the mandatory distribution schedule. However, your employer's plan may not provide for such distributions. Some 401(k) plans don't include a provision allowing active employees who are over age 59½ to withdraw money. You will need to check to see whether your plan permits such distributions.

Ted Benna, creator of the first 401(k) retirement savings plan, will answer your most intriguing questions every week. With over 30 years of experience as an employee benefits consultant, Ted is a nationally recognized expert on benefits issues. He has authored two books, Helping Employees Achieve Retirement Income Security and Escaping the Coming Retirement Crisis, and is President of the 401(k) Association. Ted is a frequent speaker at meetings of 401(k) plan sponsors and participants. His articles and comments have appeared in numerous publications, including The New York Times and The Wall Street Journal.

The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.

Ted's Table

TB: You must report only the amount that was refunded as taxable income. You should retain all your records so that you will be able to show the IRS exactly what happened in the event of an audit.

TB: The answer to your question is yes, but it's likely to require some patience and effort.

I recommend proceeding as follows. Submit a written request to the human resources director of your company. In it explain your situation and request a restoration of the money you have lost. Include in the letter that you will contact the Department of Labor and/or retain an attorney to help you if the bank refuses to restore the amount you have lost in a timely manner. You may contact the Department of Labor by calling 800.998.7542. You will need to contact some attorneys in your area to find one who is knowledgeable about this subject.

TB: If you roll the entire untaxed portion directly to an IRA, your employer shouldn't withhold any taxes. The employer is required to withhold taxes only when a participant receives a distribution directly from the plan. So, the key is to not take your taxable money but to open the IRA in advance and to instruct your employer to transfer the entire taxable distribution to this account. This is known as a trustee-to-trustee transfer. The money you roll over directly to the IRA will be taxable as you withdraw it from the IRA.

Any money you have in the plan on which you have already paid federal income tax must be distributed to you. No taxes should be withheld from this amount since you have already paid the applicable taxes.

TB: A problem you will face if you leave your employer prior to age 55 is the 10% penalty tax that applies to early distributions. It will be necessary for you to structure the distribution from your 401(k) and IRA as an "annuity" stream of income in order to avoid this penalty tax.

However, most 401(k) plans don't permit this type of distribution. If your plan doesn't permit equal, periodic distributions, you should roll the entire amount directly into an IRA. Before you do this, discuss with the financial organization where you intend to place the money and exactly how this will work.

TB: The answer to your question probably is yes. Legally 401(k) plans aren't required to distribute the money accumulated until retirement age. Most employers want to get rid of the money former employees have accumulated so they permit earlier distributions. Your husband probably was a participant in a plan that updates the value of participant accounts only at the end of each plan year. Distributions from such plans generally aren't permitted until after this updating process is completed. This usually takes six to eight weeks after the end of the plan year. The amount distributed is the value as of the December 31 year-end. Your husband won't receive any investment gains or losses from December 31 to the date his benefit is paid.

This arrangement is legally permissible so the only thing you can do is wait.

TB: Legally a participant may withdraw any amount he wishes between the ages of 60 and 70 without having to pay the early distribution penalty tax. Any such distributions won't trigger the mandatory distribution schedule. However, your employer's plan may not provide for such distributions. Some 401(k) plans don't include a provision allowing active employees who are over age 59½ to withdraw money. You will need to check to see whether your plan permits such distributions.

Ted Benna, creator of the first 401(k) retirement savings plan, will answer your most intriguing questions every week. With over 30 years of experience as an employee benefits consultant, Ted is a nationally recognized expert on benefits issues. He has authored two books, Helping Employees Achieve Retirement Income Security and Escaping the Coming Retirement Crisis, and is President of the 401(k) Association. Ted is a frequent speaker at meetings of 401(k) plan sponsors and participants. His articles and comments have appeared in numerous publications, including The New York Times and The Wall Street Journal.

The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.