My son's friend had a retirement plan at work, (a SEP, I think) and left his job. The AG Edwards broker's assistant called and told him he had to take the money if he wasn't going to add to it anymore. The kid didn't know his options and got a check, minus 20% withholding and another 10% for the early withdraw penalty. He then endorsed the checks and put them into his regular IRA as a rollover. I know the rollover isn't taxable, but what about the 30% that was sent to the IRS? American Funds said it's too late to get it back from them. Please help. Thanks.
2007-07-19 02:31:23 · 5 answers · asked by fsfa 6 in Business & Finance ➔ Taxes ➔ United States
When he does his tax return, he will calculate any actual tax due. He'll show the withholding taken from the IRA added to the withholding from any jobs that he had, and if more was withheld than he owes, he'll get it back as a refund from the IRS.
The only problem here is that if he just deposited the checks into a rollover IRA, then he only rolled over 70% of what he withdrew, so he'll owe taxes and the 10% penalty on the 30% he didn't roll over. The only way to avoid that would have been to put in enough money to the rollover IRA to cover that.
2007-07-19 03:19:16 · answer #1 · answered by Judy 7 · 1⤊ 0⤋
He needs to deposit the withheld money into his Rollover or the shortage will have tax and penalty. He will get the excess withholding back when he files his taxes. The kid needs to ask questions when making important financial decisions. Edward Jones should have told him when they contacted him about the withdrawal, but it is too late now. Can you loan him the 30%, are you sure it was 30% not the normal 20% withholding?
2007-07-19 02:38:26 · answer #2 · answered by shipwreck 7 · 1⤊ 0⤋
They should have withheld only 20%.......not 30%.
1) He will get credit for the withholding when he files 2007 return next spring. There is no way to get it back before then.
2) To truly make this transaction exempt from taxes and penalties, he would have had to come up the withholding from his own money to also put in to the IRA. If he did not, the amount that was withheld will be subject to tax and penalty. It is a strange rule, but that is the way it is.
2007-07-19 02:38:39 · answer #3 · answered by Wayne Z 7 · 1⤊ 0⤋
He also could have done a direct rollover. That is have the broker send the funds directly to the IRA.
Also, the rollover amount would have to have been deposited within 60 days to qualify for rollover treatment. Otherwise the full amount will be subject to the penalty and taxes
2007-07-19 06:28:25 · answer #4 · answered by Mark S 5 · 0⤊ 0⤋
Sounds like this young person got screwed. I would find out what governing body controls these brokers, I am pretty sure it is the security exchange commission, call them. If it is not them, they will steer this person in the right direction. Don't be afraid to call the IRS, I have called them regarding an issue like this, believe it or not part of their job is to help us, not just screw us out of our hard earned money. I think it will be possible to fix this and get some money back, one thing for sure, do nothing and they win. Sounds like a broker screwed up!
2007-07-19 02:40:35 · answer #5 · answered by Robert D 4 · 0⤊ 1⤋