Rollover IRA, Penalty Questions and a long story. Hi, everyone, since I can't get a satisfied answer from either my former employer, my accountant & my friends, I think maybe some elite trader here can answer my question better. I left my company one & half year ago. And I have about $15,000 in the 401K account. 3 months ago I applied an InteractiveBrokers Direct Rollover account and would like to transfer my money from former 401K plan to this account because the HR manager (one of 3 company owners) insist that I have to open a "qualified IRA" account first. When I did open it then he told me that in order to withdraw money from my 401K plan, he must have the other 2 owners to sign the paper and he said the other 2 company owners are overseas and can't get back until one month later. I told him IB only allow 3 months to fund an account and he keeps arguing that why a broker will only allow a 3 month period to fund an account. Anyway, when the other 2 owners came back and signed the paper, another month passed by, and during that month I keeps calling to check the progress and he said it just took time. Then another 2 weeks passed by and He said the company handling 401K (which happens to be Alliance Capital) moved their office to new location and he & the agent who handle 401K plan for the company did not get informed, go figure. This is absolutely outrageous, how can a company this big moved their office and not informing their customer? Absolutely excuse! 2 days ago, my applied Rollover IRA account was closed by IB because 3 months pass by and $0 was deposited to the account. Today, I got the HR manager's call say he got the money from the 401K plan and will write me a personal check. My question is, can I accept this $15,000 personal check? Will I get penalty from IRS, even if I deposit this check within 60 days into a new applied IB Rollover IRA account? Or should I ask the company pay directly (either check or wire) to IB? And is this amount over IRA distribution limit? Thanks for any suggestion, all inputs will be appreciated.
The important thing is that this transaction needs to be a "direct rollover" [also known as a "direct trustee-to-trustee" rollover] in order to prevent withholding and taxation as an early distribution, as well as the 10% penalty. It sounds to me like the old administrator is playing fast and loose, which could create problems. Tell the administrator that the rush is over since the new 401k account was closed [due to the old administrator's delay], so take the time to cut the check properly.
At no point would a real trustee have transferred the funds back to the employer, in the employers name. I know from first hand experience. I would contact Alliance directly and get the forms and submit them to Alliance and have them contact your former employer. It sounds like the funds were never deposited to your 401k account if they are willing to give you a personal check. That doesn't wash with the IRS or the regulators. I have been a plan administrator rep when I own a successful company with multiple partners. I sold out my share of the company and left the funds in the 401k plan and later they sold the rest of the company to a third party who ran the company into the ground and it closed. The funds are tied to your Social Security number with Alliance and proof is all you need to excute the transfer at the end of the day. In my case the plan administrator was HD VEST out of Dallas and the funds were in Putman mutual funds inside of the 401k. VEST told me I would have to go back to the now defunct company admin which was impossible. I went Putman and got the funds transferred to a qualified IRA in my own name and SSN. If you take a personal check and it bounces then the problem is moved to the courts in your area and it's then between you and the company, not the plan administrator(Alliance) You should have 401k statements that you can send to Alliance and force the issue for a proper transfer. Prior to this with the same company we owned we were using a third party payroll company. Aka American Workforce, similar to ADP(a big public player in the HR outsourcing space) They did all of the Taxes, payroll deposits, 401k deposits and 401k statements on a turnkey basis. Well they had no problems sending out fraudulent 401 statements to employee's but never actually make the deposit to the plan trustee. When American Workforce went belly up our only recourse was the court system since funds had never been deposited to the plan we could'nt go after the trustee. As the gentlemen from Traders Acconting pointed out don't screw around on this item. It can get expense otherwise. Personally I think your former employer needs to be much more professional about handling this. fwiw Been there done that, twice now. Good luck Bsulli This is my own personal opinion and should not be construced as investment advice.
If you have to take the funds directly from the employer, if it were me I would open a qualified IRA with the bank you use and have the funds wire transferred into the account. Bank to bank even if it means you pay the 30 bucks or so for the wire fees. I wouldn't accept the check. For now it would be more important to me to get my funds safely parked under my control than to worry about getting a broker IRA account opened and funded. Even if there are IRS penalties later on. That's still cheaper than not getting the funds at all. Possession is 9/10th of of the law, in a figure of speech. fwiw. Bsulli