Why Can’t I Roll Over My 401k Without paying 20% Taxes? Actually You Can

Wondering, Why Can’t I Roll Over My 401k Without paying 20% Taxes? You may have heard that whenever you rollover your 401k into an IRA 20% of the money in your account is withheld in order to pay for taxes and penalties.

You only get 80% of your money. But that does not mean that you have to pay that 20% taxes on your money. Let me explain.

Say you have $100,000 in your 401k and roll it over. You receive $80,000 to deposit into your IRA. The other $20,000 is withheld. Ok pretty basic stuff.

However if you deposit the full $100,000 into your IRA then you will be able to write off that $20,00o that was withheld in taxes. So you only need to come up with that extra $20,000 to not have to pay taxes on it.

If you can manage to do that then you should come out even. However if you do not have that extra 20% lying around and do not want to pay taxes on your retirement money there is another option.

Option 2

The second option is to do a Trustee to Trustee Transfer. This is where your employer would simply transfer the full amount in your account to another account. It is a much easier and less complex situation that is worth taking a look at.

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