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Watch Out For The 401k 60 Day Rule

Watch Out For The 401k 60 Day Rule


Watch Out For The 401k 60 Day Rule

by Roger Harrison

There a many different choices when you determine to transfer your funds out of an existing 401k retirement account. Deciding where to transfer your funds to, wading through all of the rules regarding the transfer, and meeting all of the stringent deadlines is often enough to stress anyone out.

It is important that you take the time to sufficient research where and how to transfer your funds from your retirement account. The first step in this process is to consult with your financial advisor or plan administrator.

Your financial consultant or tax advisor will be able to tell you whether to transfer your funds into another 401k, IRA account, or other investment vehicle. As a professional they will be updated on the latest tax news and regulations.

As with many other tax issues, the IRS has complicated the process enough that a tax professional is required to sort through the rules. One of the rules that often traps investors is the 60 day transfer rule.

The 60 day rule is in reference to the allocated time available to transfer the funds out of your existing account into your new retirement account. Once you have determined to transfer your 401k, they expect you to take care of the transaction. You should be prepared to make the decision and take action on the account.

The tax implications of the 60 day rule are very real. Most advisors will encourage their clients to make their decision before beginning the distribution out of the account. This ensures that whatever direction they take, they will have sufficient time to complete the rollover.

The IRS has been notoriously strict on this 60 day rule. There are cases in which transfers on the 61st day have been rejected by the IRS. There are very few circumstances in which the IRS is lenient on this stipulation.

The only scenario in which the IRS may be somewhat lax on this rule is in the case of extreme circumstances or hardships. These circumstances are limited to cases such as death, incarceration, hospitalization, or disability. Though it is considered a compassion ruling to bypass the 60 day rule, the IRS does not provide a free pass to the taxpayer. Cases in which the compassion rule is applied will often see a fee for the waiver, dependent upon the size of the account transfer.

About the Author:
Roger Harrison is an experienced financial planning enthusiast that has extensively studied how to do a 401k rollover to ira and the best ways to transfer your money. Visit him online at the The 401k Rollover Guru for more information on these and other related topics.

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