Jake, age 48, wants to roll over $50,000 from his qualified plan from his ex-employer to a rollover (non-Roth) IRA. He requests a check and receives $40,000, which he subsequently uses to open an IRA 7 weeks later. Which of the following is the best statement describing Jake”s situation?
a. Incorrect. Even if Jake deposits the $40,000 check into an IRA, the $10,000 that was withheld must also be deposited to avoid tax and penalty.
b. Incorrect. Jake must pay a 10% penalty only on the part of the distribution that is not rolled over
c. Correct. Jake must roll over $50,000 into the IRA to avoid any tax or penalty. Therefore, he must add $10,000 out of pocket (the amount withheld by his ex-employer) to the $40,000 check received from the qualified plan.
d. Incorrect. Jake did roll over $40,000 of the distribution within 60 days, so he is not subject to a tax and or a penalty on that part of the distribution.
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