Former Employer Terminated 401K Plan & Mailed me a Check

[Guest Rosey Langham]

My former employer terminated the 401k plan and sent me a check for the balance of my funds. The funds were sent from the 401k plan, to my former employer, and then they made a check out to me for my balance.

Will i be responsible for penalties/taxes on this? Kinda freaked out

[QDROphile]

You are responsible for the consequences of the distribution. If you wish to defer distribution, you may yet be able to roll the amount over to an IRA. You have 60 days from receipt to do so. However, you need to educate yourself about the rollover rules because it is likely that the amount you received is not 100% of the distribution, and you will owe taxes and possibly penalties on the amount that is not rolled over. The plan probably withheld 20% of the distribution and forwarded the amount to the IRS to be applied against your tax liability. See IRS Publications 575 and 590, available on line at the IRS website.

It appears that the plan did not follow the correct procedures for distribution. You should have received advance notice, information about rollovers, and the ability to elect a direct rollover (saving you the 20% problem) before the distribution was dumped on you. The irresponsiblity of the employer in the first plan suggests that you have a tough slog ahead of you to try to get the plan/employer to recitfy the failure to follow correct procedures.

There is the possibility that the plan behaved properly and you have been disregarding communications and that you missed your opportunity to elect a direct rollver.