Leaving a job? You may want to roll over funds in your former employer’s 401(k) plan to an IRA. But there’s a tax trap for the unwary. You can dodge it by arranging for a direct trustee-to-trustee transfer from the plan to your IRA. Why a direct transfer? If you receive a 401(k) plan check that’s payable to you personally or have a distribution put into a personal account electronically, 20% of the taxable amount of the payout will be withheld for federal tax. Then, you have 60 days to come up with the missing 20% and get it into your IRA. Otherwise, it’s not a tax-free rollover. In that case, you’ll owe income tax on the 20% and a 10% early withdrawal penalty if you’re under 59½. Contact us with questions. © 2024