Monday, July 12, 2010

New item learned about 401K's

So today I have discovered something very interesting about 401K rollovers. I have dealt with these quite frequently, and this is the first time I have had to answer this question. We have been setting up an IRA rollover for a client to rollover his 401K. Something you probably didn't know is that any person initiating one of these has the right to retract their request within a specified window of time. When dealing with most financial investments this window is 60 days. In the case that you do retract your application for rollover it is sent directly back to your 401K to be invested elsewhere. The main reason that someone would do this is if they were laid off from one job and then found another one after initiating the application for rollover.

Ok, so back to what I had learned today. The call came in about whether or not you can retract the rollover request if you had already used some of the money to pay bills. I had no idea at first about this and needed to consult with my boss. So what I did find out is that yes you can do a partial rollover retraction within the 60 day window. This prevents the 10% early withdrawal penalty from occuring, as would be the case if he had already went through with the rollover and then decided to move it back. The only down side is if you had already paid taxes on the rollover when you initiated the application. You will not get any paid taxes back on the rollover retraction, whether or not is was within the 60 day window.

So I consider this very important information to have on hand for future client matters. If you read this it will also help along the way if you are ever in the same situation.

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