My former employer closed out my 401(k) and sent me a check for the balance. They didn’t tell me they were going to do this but since I had a balance of $175 in the account I wasn’t surprised that they closed it. They didn’t withold any taxes from the check. I believe I’ll owe tax on this money unless I roll it over to a traditional IRA. I don’t have a traditional IRA and I don’t think it is worthwhile to open one just to contribute such a small amount. I could put the money in my Roth IRA but I’d still owe taxes on it. I’m wondering if I will owe a penalty for early distribution. I’m thinking I shouldn’t since I didn’t initiate the withdrawal but I’m not sure. My thinking is that I can do whatever I want with this money as long as I declare it as income. They didn’t close the account until this year so it shouldn’t have any effect on my 2008 taxes. If anyone has any knowledge of whether my thinking is correct or not or has more information on this subject I’d love to hear it.
