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Lev, Tax Preparer
Category: Finance
Satisfied Customers: 29954
Experience:  Personal Investment, Tax Preparation
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My friend recently resigned from her job and she has a

Customer Question

Hello Sir,
My friend recently resigned from her job and she has a balance of about 3600$ in her account. She is currently in India and will be back by Feb of next year. She is confused as she does not have a job now and do not know where she can transfer the 401K amount.
She has spoken to the 401K company and they have told her that her previous employer could liquidate the amount and send her the check as the amount is less than 5k$.
Could you please let us know the best option available to us at this moment as she does not want to end up paying penalty and taxes if she has to withdraw her amount?
Is opening an IRA account best for her? Also kindly suggest how to open the account online as well
Submitted: 1 year ago.
Category: Finance
Expert:  Lev replied 1 year ago.

Hi and welcome to our site!

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.

Expert:  Lev replied 1 year ago.

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If you still have any doubts, need clarification - please be sure to ask.

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