Can I recoup these withheld taxes?

November 18, 2005 2:19 PM

What is a "capital accumulation account"?

What is a "capital accumulation account"? I had one with a job that I had quit over two years ago. The money had been in mutual funds. Now, after a contractual two year waiting period, they've returned the money to me, less withholding (they withheld about half of the $30k). The accompanying letter reads "the CAA balance is treated as ordinary income".

Can I recoup this withholding by putting the whole $30k into some sort of retirement fund at my new job? If so, how soon do I have to do it?

posted by neuron to work & money (6 comments total)

Googling reveals that the 30K is taxable this year. Report it. You'll get back what you didn't need to pay the tax on it.

There may be a way to get out of it by doing something like you suggest with the whole 30K. If you're not lucky here and have an accountant or tax attorney come along and tell you something definitive, then you should still consider consulting one yourself.
posted by Ethereal Bligh at 3:51 PM on November 18, 2005

You can't put the whole 30k into any retirement money but if you have a 401k at work you can make a one-time payment into it and max out your contribution. That's going to be the 14k this year, and if you're 50 or over you can throw in another 4k "catch-up" contribution. You may have limits at your new company or they may balk at the additional paperwork of a one-time contribution. Make an issue of it, every buck you can't put into that 401k is costing you about $0.28 in taxes paid.

Bligh is right, with $30k you should contact an advisor of some sort.
posted by phearlez at 4:33 PM on November 18, 2005

Googling reveals that the 30K is taxable this year. Report it.

You should get a 1099 or similar statement from whomever sent you the check, probably in January, if one didn't actually accompany the check (it's not required to). That means they will have reported it to the IRS, as ordinary income, and you should as well.

And no, the IRS won't return what was withheld (that's where most of it went), and neither will the Social Security Administration or the State of Oregon (assuming state income tax was withheld), regardless of what you do with the money.

And, personally, I think you'd be wasting your time (and money, if you can't get a free consultation) to talk to a tax attorney - I very much doubt that the letter you got would include a statement that the $30K was ordinary income if in fact there was any alternative.

As far as whether putting the money into a 401k plan at work is best or not, that depends on your circumstances. If you have credit card debt, you'd be better off paying it off (if you can avoid running up a tab again). If you don't have at least three months of (net) income easily available (savings account or similar liquid investment) [six months is better], then a strong argument can be made that you should avoid putting the money into a 401k where you can get it out only by paying a penalty. If you're saving up for a down payment on a house, then again a 401k could easily be the wrong place to put the money.
posted by WestCoaster at 8:23 PM on November 18, 2005

Waitaminute. If this cap account was a qualified plan, such as a 401(k) (and that's what it looks like, to me, with the little you've explained) you certainly can make up the difference and roll the entire thing over:

To roll over the entire amount of the distribution, you can make up the 20% that was withheld with other money. The amount withheld will then be credited against any income tax owed.

Get a statement, verify the exact registration of the plan, and find out the exact amount of the tax withheld. Add that to the distribution you received (out of your pocket, I'm afraid), and put it into a 401(k) or rollover IRA.

If the plan is indeed a QP of some sort and you make up the difference in a rollover, you can reclaim the withheld amount when you file your taxes.

I used to do some pension consulting. Email me a scan of the letter, if you'd like, and I'll take a look at it.
posted by Kwantsar at 9:04 PM on November 18, 2005

You can move money from one retirement account to another retirement account and avoid all taxes *only* if the check from the old retirement fund is made out to the new retirement fund (i.e, if the money is never in your possession).

If the check has already been written and it's made out to you, it's too late and you have to count it as income for this year.

Basically, retirement money is counted as income at the first point that it is in your direct possession, even if it is for a short amount of time and then you put it in another fund. Remember this for next time you change jobs, and make sure you ask for the check to be made out to the new fund.
posted by clarissajoy at 4:30 PM on November 19, 2005

Wrong, clarissajoy.
posted by Kwantsar at 11:01 PM on November 19, 2005