Can I avoid the mandatory tax withholdings?

  1. Only if you instruct your plan to send your account balance directly to your IRA or the 401(k) plan of your new employer. This is called a “trustee-to-trustee transfer”.
  2. If you are intending to rollover your account balance, it is best to have it happen via the trustee-to-trustee transfer.
  3. If not, when you do deposit your account balance into that IRA or new 401(k) plan, you won’t have the amount of federal and state withholdings to deposit unless you have other sources of funds. Thus you may inadvertently receive taxable income and a tax penalty.