I've recently changed jobs (past two weeks) from an employer with a 401k to a new employer who does not offer any retirement accounts. I made a huge mistake and accidentally cashed out my 401k instead of rolling it into an IRA.
What are my options/course of action for getting this $ back into an IRA and NOT paying the early withdrawal penalty + taxes?
Thank you very much!
You have 60 days from the time it came out to deposit the money into an IRA. Tell the IRA custodian it's not a 2012 deposit, but a rollover from a 401(k). Last - it's practice for these withdrawals to have 20% withheld. Be sure to deposit the full amount (i.e. add back in the 20% withheld) and also be sure it's all reconciled on your 2012 tax return.
Edit - to answer your comment/question. "Most" likely, if the account was worth, say $10,000, you would have only received $8000, as 20% is withheld for taxes. So, you have $8000 in your hands, but to roll over the full amount, you come up with an extra $2000, and give the new IRA custodian $10000. Now, in April, 2013, you need to remember the old 401(k) custodian sent the IRS that $2000. It's tax you paid, and all other things being equal, you'll get it back then.
Another, completely different way to look at your huge mistake:
It's not a huge mistake.
You're getting your money out of a restricted account. You're paying taxes now (plus an extra tax of 10%) to regain some of your privacy of where you're putting your money.
You're paying up now as a trade-off to paying much later, when the rules can be completely different and the tax rates much higher.
You're deciding not to put the money into another restricted account, which has yearly reporting requirements to the IRS above and beyond those required with taxable earnings.
It's a cost-benefit analysis whether you roll your money over to an IRA account or not. You hear about the benefits a lot more often than you hear about the costs, which it what I'm introducing you to with my answer.
