I quit my job with a company several years ago and never started another 401(k) due to job uncertainty. Due to the account inactivity, I recently received a check for the amount that was in the account. I have also started with an employer that I don't plan on leaving for a while and would like to start a 401(k) with them. Can I put the check towards the 401(k) without being penalized or am I going to be penalized because I already have the check, but have not cashed it?

ANSWER

The BIDaWIZ Team's Answer:

When did you receive the distribution from the 401(k). It is possible that you will not pay a penalty on the distribution as it may be treated as a trustee to trustee rollover. In order to obtain this treatment, you must deposit the same funds into the 401(k) of your new employer or an IRA (subject to limits) within 60 days of receiving the distribution. This is referenced in IRS Publication 575. If you fail to roll over the full amount in 60 days, the IRS deems the shortfall a taxable withdrawal and imposes ordinary income taxes plus a 10% penalty.