Today we received a check for around 3000 for an old 401k account my wife had at at previous job. We are not sure why it was suddenly cashed out, although the business was sold a few months back.

The federal taxes were withheld, my question is come tax time what are we looking at having to pay in addition to the nearly 800.00 we paid in federal taxes already.

Also if we reinvest within the 60 days into an IRA do we receive any of the federal tax money back.

I have also been told by several people that you are allowed a one time withdrawl of your 401k and not subject to penalty, just the taxes.
Thanks for your help.

No on the one time withdrawal, there are hard ship exemptions.

If you put it back into a qualified plan, your taxes would not be due so it would show as a credit on your taxes, so basically you can get it back as refund if you don't own other money on taxes.

The reason why they sent the money is most likely because most plans won't keep investments for former employees if the amount is less than $5K - they'd rather not be bothered with a lot of relatively small accounts.

If you aren't in some sort of extremely deep financial straights right now, then I suggest that you immediately see about rolling the full amount into an IRA ASAP. This will allow you to avoid paying any taxes or penalty. If you don't so this, and instead keep the money, you will owe $300 penalty that you will have to pay on your taxes this coming April (that's 10% of the amount withdrawn). There is no option for a one-time withdrawal without penalty (assuming you are less than 59-1/2 years old). The bad news is that you will have to fund the rollover IRA with the entire $3K that was withdrawn for the 401(k), even though $800 or so has already been withheld. If you do this right you will indeed get the amount withheld after you file your taxes. I suggest you contact any one of many investment firms who specialize in rollover IRAs to see how to go about this - check out Fidelity, T. Rowe Price, Vanguard, Schwab, etc. Time is of the essence!

Ebaines is right on. Since it's the end of the year you can roll thos over tnha recover the withheld amount when you file your taxes, so it won't be long to wait.

The reason for the disptribution could have been as she said, or it could be that the plan was terminated as a result of the sale and everyone got a distribution.