They sent me a check for my 401k, now what?

[LGT]

We are going to have to file soon. This week I get a check in the mail from the company I quit working for last year. It was for my 401k account. I did not ask for it, they just cashed it out. I called the provider that handled it and they said companys can do this if it is under $5000 without telling you they are going to do it. Now what? This puts our income up again. I think this is all going to backfire on us. What do I do with the money. It's not all that much, but it is money I wouldn't have otherwise. Any suggestions?

[sickandtired8]

We are going to have to file soon. This week I get a check in the mail from the company I quit working for last year. It was for my 401k account. I did not ask for it, they just cashed it out. I called the provider that handled it and they said companys can do this if it is under $5000 without telling you they are going to do it. Now what? This puts our income up again. I think this is all going to backfire on us. What do I do with the money. It's not all that much, but it is money I wouldn't have otherwise. Any suggestions?

I would think you could use it to pay your attorney fees...maybe some car repairs if you are keeping your car. S&T

[CindyLou]

DON'T CASH IT!! Call the company and request that they cancel the check and redistribute the funds to a direct roll over account. Make that call first thing monday morning. Whatever you do don't cash it. I do think you have a certain amount of days that you can actually deposit it into an IRA account where it is protected and would not be considered income. Again, just hold onto the check UNCASHED until you can get some sound legal advice on how to handle this in order to accomplish 2 things: 1. to keep it from becoming income that will be included in your 6 month caclulations 2. to keep it from being taxed and penalized by the IRS from cashing it out of your retirement! good luck

[tylerann]

This is a little like what we went through. Of course we had already filed, but my husbands company discontinued their annuity program and was cashing them all out. We talked with our attorney about just paying for our bankruptcy early as we now had the money but they would not allow it. We were advised to immediatly roll it over to an IRA account. Do not cash.

I am not sure in you situation. I would contact an attorney as soon as possible to get some legal advice.

[Yankeegirl]

Technically you have 60 days from receipt of the check to deposit it into a Rollover IRA account. However, there are few things to keep in mind if you do this:
1. In order to avoid a taxable situation, you need to deposit the FULL amount of the account that was liquidated. The distributing company should have (by law) withheld 20% for Federal Taxes. This amount will have to be deposited BY YOU into the Rollover account.
2. You will receive a FORM 1099-R in 2008 that you will have to include when completing your tax return. It will show the full amount of the distirbution. You will also get a FORM 5498 showing the deposit into the Rollover IRA. As long as the amounts on both Forms match, you won't have to pay any taxes.

TO AVOID ALL IF THIS:
1. Don't cash the check!
2. Send it back to the distributing company and tell them you want to do a Direct Rollover.
3. Contact a new company (such as Vanguard or Fidelity) and tell them that you want to open a Rollover IRA. They will help you complete a Rollover packet that is sent to the distributing company.
4. The distributing company will send the check directly to the new company.
5. You WILL get a FORM 1099-R in 2008. However, box 7 will be marked with a code (G, I think) that indicates that it was directly rolled over.
6. You won't owe any taxes on the transaction.

If you simply cash the check and use it pay for attorney's fees and what not, then you may be hurting yourself next year. If the person who own's the account was under 59 1/2 then you will probably owe a 10% penalty on the funds when you file your tax return next year.

[LGT]

Thanks for the advice. I will contact the company again to see about rolling it over. Like I said it is not a huge amount, but it would increase our income.