Expert: Allen - 11/4/2006

Question
After completing all of the forms for a direct rollover of approximately 38,000 from a 401K (requesting 16,000 to be direct deposited to me), I received a deposit for 38,000 in my checking account with my broker getting 3,500 and I got a tax zing for $9,600+.  My plan benefit mangers say that now it will take 45 days to correct the error.  I am in a hardship situation and not working and needed that 16,000 to make ends meet until I can find a job and/or sell my house.  My intention was to repay and put the proceeds of house sale into my IRA that I set up.  What options do I have other than returning ALL of the money and waiting 45 days - which puts it pretty close to the wire of the 60 days.  This just happened on 10/31/06 - Happy Halloween and here is your trick!

Answer
I may be misreading what you sent but the numbers don't add up (at least for me). It sounds like you were entitled to either $54,000 ($38,000 + $16,000) or $54,000+ the taxes that would be withheld on the money that was sent to you. However, you were paid a total of $51,100 ($38,000 + $3,500 + $9,600). You'll have to clarify that if you want a complete answer.

In any event, it sounds like you received more than the $16,000 you needed now. The extra amount that was sent to you rather your IRA is subject to tax. You obviously can roll the extra to an IRA. But if you can't come up with the taxes that were withheld on that money, you will have a larger tax bill than you anticipated..

I would contact the plan administrator and tell them they need to correct and because of the rule that rollovers must occur within 60 days and the fact that you need some of the money now, the 45 day delay is totally unacceptable. You can also mention that you will have to seek help from the Dept. of Labor if they can't correct their error quickly.

Good luck.