401k benefits after termination

[jonsmommy]

My husband left a company in 1998. We requested that his 401k funds be paid directly to him, understanding the tax consequence. We just received the funds in August of 2000 as we wished assumming the proper deductions were taken out. Two days ago we received a phone call from the company's HR person saying that the financial co. had made an error in dispersing the funds; they did not take out the proper deductions. The amount I believe is only around $200-but do we have to pay them that money back? They made an error-and it has been 2 months since they dispersed the funds.

 

[buddy2bear]

Early withdrawal of 401(k) funds which are not rolled over within the 90 day "grace" period have a 10% penalty attached, which is sent directly to the IRS and at the end of the year, when filling out your tax return, you are able to list this penalty as a paid tax. Your 401(k) funds are income to you. You might also have to lose the interest you accummulated within a certain period if the 401(k)Plan allows for that penalty to go to the Plan Administration. Check out your Summary Plan Description -- lots of nice small print. If you can't locate it, call HR and ask them if this payback is part of the 10% penalty or the forfeited interest. If it's the interest, then you have to take the chance it's too small for them to sue you for. If it's the penalty, then you will be facing IRS and you don't want to go there! Depending on your tax return deductions, you might "get that back" at the end of the year.

 

[jonsmommy]

Thanks for your reply, buddy2bear. They took care of the 10% to the IRS & this add'l 10% (as I understand) should've gone to the administration. I believe the amount is only around $200 and that is what they overpaid. Should I put up a little stink about paying it back?
The financial company made the mistake, I feel the employer should hold them responsible and they should eat the $$$.

 

[buddy2bear]

Now jonsmom, you have to ask yourself -- (1) Is this amount small enough that they will just "forget" it or will they report it to a credit bureau as a bad debt, which would put a bad mark on your credit? (2) Will they send it to a collection agency, which means you will be paying back a lot more than that $200? (3) Is this worth my time and trouble fighting over it? You should be guided by your answers to these questions. If you do pay back the money, make sure they sign a release stating that this is everything you owe them.