Why Did I Receive Two Distribution Checks from My Old 401k During a Rollover?

Many individuals find themselves puzzled when they receive two distribution checks during a 401k rollover process. This article aims to provide clarity and explain the possible reasons behind this occurrence. If you find yourself in a similar situation, this guide will help you understand what exactly is happening with your retirement funds.

Understanding 401k Fund Sources

Before we dive into the reasons for receiving two distribution checks, it's important to understand the different types of funds that can be present in a 401k account:

Roth and Pretax Funds

Your 401k plan likely consists of various sources of funds, including both Roth and pretax contributions. Roth contributions are made with after-tax dollars and can be withdrawn tax-free after the five-year holding period. Pretax contributions, on the other hand, are made with pre-tax dollars and are tax-deferred until withdrawal.

The distribution checks often reflect these different sources of funds. For instance, one check might be associated with Roth contributions, while the other might correspond to pretax contributions. Both types of contributions can be transferred to another 401k or an individual retirement account (IRA).

The Most Likely Reason for Two Checks

One of the most common reasons for receiving two distribution checks is the presence of both Roth and non-Roth funds. Here's a further breakdown:

Non-Roth Sources

Non-Roth sources of funds in a 401k might include:

Regular pre-tax deferrals Safe Harbor Employer Match, which is always pre-tax

These funds are typically tax-deferred and will be taxed at withdrawal unless rolled over to a Roth IRA or your new 401k.

Other Possible Scenarios

There are a few additional scenarios that could result in receiving two distribution checks:

Contribution or Dividend Payments: Sometimes, residual amounts, such as dividends or interest, are paid out after the initial distribution. These payments can prompt another check to be issued. Same-Time Distribution: If the distribution checks were sent out at the same time, one might be a pre-tax contribution and the other an after-tax contribution. Age Factor: If you are over 70 1/2, it might be a qualified distribution related to required minimum distributions (RMDs).

How to Find the Answers

To resolve any uncertainty, the most effective way is to contact the administrator of the retirement plan that issued the checks. They will be able to provide detailed information about the source of each check and guide you through the next steps. Here are three key steps:

1. Contact the Administrator: Reach out to the plan administrator to clarify the details of each check. They will have access to your account records and can explain the components of the distribution.

2. Review Your Plan Documents: Check your 401k plan documents for any specific rules or procedures related to rollovers and distributions. This information can provide valuable insights into the nature of your accounts.

3. Contact Your Financial Advisor: If you have a financial advisor, discuss the situation with them. They can offer professional advice and guide you on how to proceed with the rollover process.

Conclusion

The process of rolling over your 401k funds might seem complicated, but understanding the different types of funds and the reasons for receiving distribution checks can simplify the situation. Always reach out to the administrators, review your plan documents, and consult with financial professionals to ensure a smooth rollover process and proper management of your retirement savings.