What is a Direct IRA Rollover? This 20% IRA Withholding law can be overridden by doing a 100% Direct IRA Rollover to your own Individual Retirement Account (IRA). This law is implemented to discourage retirees from withdrawing money from their plans early on and let it earn the power of compounding interest. Read your 401k Summary document to determine whether you are allowed to make any withdrawals in the course of your employment contract. Most employers do not allow employees to withdraw money from their 401k plans during their working life. However, if you are older than 59 and 1/2, this 10% early-withdrawal penalty fee does NOT apply to you. You will NOT have to pay any taxes on this, provided you do the rollover WITHIN 60 days.
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