USA 401k Force-Out - Received Distribution Check


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I had a 401k through a previous employer to which I made contributions to during my previous period of employment (2000-2006). After leaving the company, I decided to leave my 401k with my company's 401k. I was moving to Belgium and the rate of growth was reasonable. It has remained in that account ever since.

In November 2011, I received a letter from the company that manages the 401k (Prudential) that informed me that they would move my account to an IRA if I did nothing if my account balance was more than $1,000. I did nothing and figured everything would be fine.

Then, sometime in February 2012, I received a 401k distribution check from Prudential (minus a 30% withholding) sent to an old address in Belgium. (Fortunately, it's the address of my in-laws who I see fairly regularly.) I figured it was information about my new IRA and set it aside to review later.

It wasn't until the end of March, that I opened the envelope and saw (to my surprise) the distribution check (for ~ $35,000). I thought it was strange, but figured I had misread the letter sent to me back in November so I call Prudential to see if there is anything that can be done. Unfortunately, they were not able to cancel the check and rollover the funds to an IRA since my previous company closed the 401k account (no longer active). In addition, they were not able to directly open a new IRA account for me because I live overseas. (I'm a US citizen.)

Since the end of March, I have been scrambling to try and get an IRA account created with my bank (Citibank) and rollover the funds to the new account. (It's not a great rate of return, but I'm trying to minimize the IRS penalties.) I have been able to get the distribution check deposited into my US checking account and right now I am trying to finalize the paperwork for the IRA with my bank. (Since I live overseas, it is a hassle.) Basically, I am cutting the 60-day IRS rollover period very close. For the withholding, I figured that I would just take the hit on the 10% early distribution penalty since I cannot come up with $15,000 on such short notice.

Last night, I went back through my files and found the aforementioned letter sent by Prudential back in November, read it over a few times, and realized that they screwed up. Based on the letter they sent, thay should have opened an IRA for me and rolled over the funds. In any case, I will call Prudential next week to see what they can do.

Given the circumstances:
  • If I miss the 60-day IRS rollover period, how sympathetic would the IRS be for granting a waiver. Does this fall under the case of an "automatic waiver" or would I need to apply for one?
  • Was my previous employer (or Prudential) allowed to just send me a distribution check if my employer's previous plan was cancelled?
  • Do I have the grounds to request the 30% withholding (for a rollover to IRA)?

Thank in advance for your advice.

Kind Regards,
Robert
 
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