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Generally - from tax prospective - if she want to continue deferring tax liability - it might be better to keep funds in the tax deferred account.
That is also correct - most plans have a clause that when the balance is below certain threshold and the owner did not arrange rollover - the administrator will issue a distribution check and will withhold 20% to cover possible tax liability.
If she want to continue deferring tax liability - the best option is to open a separate IRA account and ask the administrator to transfer funds to that account.If she will receive a distribution check - and still want to defer tax liability - she woudl need to deposit the money into IRA account within 60 days.If she will take distribution - that distribution will be added top other taxable income - and will be taxed based on her TOTAL income, filing status, deductions, etc.
If she is below 59 1/2 - additional 10% penalty will be applied to that distribution.
In this case - withholding woudl be credited toward her total tax liability - and all calculation woudl be done on her tax return.
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