what if a former employer contributes to my 401k in the year following my exit?
The vast majority of individual taxpayers in the United States operate on a cash basis of accounting. This means that the assignment of deductions or income to tax year is based on the date of the paycheck.  So the money in that early January 2016 paycheck has been correctly assigned to the 2016 tax year. This is unfortunate for you because you will receive a W-2 for 2016 showing that you had a retirement account. Knowing exactly how many paychecks there are in a year can be very import to know when trying the reach or avoid some thresholds. Even quitting the previous pay period might not have helped. I have seen some companies payout unused vacation, sick and severance over several paychecks. They didn't give you it all in one lump sum, they did it 80 hours a paycheck until the balance owed to the employee was zero. "Publication 590a covers this in a fairly specific manner. Page 11, section ""Are You Covered by an Employer Plan?"", specifies: The Form W-2 you receive from your employer has a box   used to indicate whether you were covered for the year.   The “Retirement Plan” box should be checked if you were   covered. So, by default, if that's checked, you're covered.  590 does go into more detail, though. Assuming you're covered under a Defined Contribution plan (a 401k for example): Defined contribution plan. Generally, you are covered   by a defined contribution plan for a tax year if amounts are   contributed or allocated to your account for the plan year   that ends with or within that tax year.  Tax Year: Tax year. Your tax year is the annual accounting period   you use to keep records and report income and expenses   on your income tax return. For almost all people, the tax   year is the calendar year. Further, they cover issues related to an employee leaving Dec. 31 very specifically: A special rule applies to certain plans in which it is not   possible to determine if an amount will be contributed to   your account for a given plan year. If, for a plan year, no   amounts have been allocated to your account that are attributable   to employer contributions, employee contributions,   or forfeitures, by the last day of the plan year, and   contributions are discretionary for the plan year, you are   not covered for the tax year in which the plan year ends. If,   after the plan year ends, the employer makes a contribution   for that plan year, you are covered for the tax year in   which the contribution is made. Example: Example. Mickey was covered by a profit-sharing plan   and left the company on December 31, 2014. The plan   year runs from July 1 to June 30. Under the terms of the   plan, employer contributions do not have to be made, but   if they are made, they are contributed to the plan before   the due date for filing the company's tax return. Such contributions   are allocated as of the last day of the plan year,   and allocations are made to the accounts of individuals   who have any service during the plan year. As of June 30,   2015, no contributions were made that were allocated to   the June 30, 2015, plan year, and no forfeitures had been   allocated within the plan year. In addition, as of that date,   the company was not obligated to make a contribution for   such plan year and it was impossible to determine   whether or not a contribution would be made for the plan   year. On December 31, 2015, the company decided to   contribute to the plan for the plan year ending June 30,   2015. That contribution was made on February 15, 2016.   Mickey is an active participant in the plan for his 2016 tax   year but not for his 2015 tax year. Mickey is in a similar (but different) circumstance, and it's clear from the IRS's treatment of his circumstance that you would be in the same boat (just a year less off) - but be aware given Mickey's situation that it's theoretically possible for them to make another contribution next year, as Mickey had, depending on when their plan year/etc. ends. So - from the IRS's point of view, everything you said the company did is correct.  They paid you in January, contributed to your 401k as a result of that paycheck, and thus you were officially considered covered for 2015." According to the IRS, you can still put money in your IRA. Here (https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits) they say: Can I contribute to an IRA if I participate in a retirement plan at work? You can contribute to a traditional or Roth IRA whether or not you participate in another retirement plan through your employer or business. However, you might not be able to deduct all of your traditional IRA contributions if you or your spouse participates in another retirement plan at work. Roth IRA contributions might be limited if your income exceeds a certain level. In addition, in this link (https://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits), the IRS says: Retirement plan at work: Your deduction may be limited if you (or your spouse, if you are married) are covered by a retirement plan at work and your income exceeds certain levels. The word 'covered' should clarify that - you are not covered anymore in that year, you just got a contribution in that year which was triggered by work done in a previous year. You cannot legally be covered in a plan at an employer where you did not work in that year.
"Your question was about recharacterizing. But then you said ""I contributed a few thousand dollars to my 401(k) as Roth contributions"" which means you never converted from a 401(k) to a Roth 401(k), the deposit was always Roth.  Even if the law changes allowing the recharacterization, it would not apply to your situation." "Yes, the penalty is the tax you pay on it again when you withdraw the money. The withdrawal of the excess contribution is taxed as your wages (but no penalty). Excess contribution cannot be added to the basis or considered ""after-tax"" (hence the double taxation). Note that allowing you to keep the excess contribution in the plan may lead to disqualifying the plan, so it is likely that the plan administrator will force you to remove the excess contribution if they become aware of it. Otherwise you may end up forcing early 401(k) withdrawal on all of your co-workers. More on this IRS web page. And this one." If you invest in a 401(k), the shares in that plan are yours for as long as you live, or until you pull them out. So, if the employer is offering any sort of matching and those matched funds remain yours after you leave, then definitely contribute; that's an immediate return on your money. If the employer is NOT matching funds, then usually it is better to contribute to an IRA instead; you get the same income tax benefits from the deduction, without the headaches of going through your company (or the company from 3 jobs ago or whoever bought them) to get to your money. If I were in your position, the most I personally would do after I quit the company (which I'm assuming you'd be doing if you were going back to your country of origin) would be to have the 401k shares rolled over into a traditional IRA; that way I'd have more control over it from outside the country. Just keep the bank holding your IRA apprised of your movements around the world and how they can get ahold of you (it may be wise to grant a limited power of attorney to someone who will be staying in the U.S. if you don't want the bank mailing your statements all around the world), and the money can stay in an American account while you do whatever you have to outside it. As long as you don't take the money out in cash before you're 59 1/2 years old, you don't need to pay taxes or penalties on it. If you were to need it to cover unexpected expenses (perhaps relating to the aforementioned family emergency), then that decision can be made at that time. If you think that's even remotely likely, you may consider a Roth IRA. With a Roth, you pay the income taxes on your contributions, but the money is then yours; you can withdraw anything up to the total amount of your contributions without any additional taxes or penalties, and once you hit 59 and a half the interest also becomes available, also tax- and penalty- free. So if you had to leave the country and take a lot of cash with you, you could get out everything you actually put into a Roth with only minor if any transaction fees, and the interest will still be there compounding. Most plans yes, but it depends on your specific plan's provisions. You want to get a Summary Plan Description for your specific plan. Speak with HR (assuming you have one, or whoever is in charge at your company) and request a Summary Plan Description (they are legally required to provide you with one if you ask, although there may be a small cost to you for printing). It will tell you in there when distributions may be made following severance of employment as it pertains to your specific plan. An excerpt from the doc submitted to the IRS for plan approval -  option g would be the choice that's available, and participant should watch out for.  This is the response (a small excerpt, the full doc ran 2 pages and had private information) -  It confirms the full document (the plan itself) was approved. "This has to do with the type of plan offered: is it a 401(k) plan or a profit-sharing plan, or both? If it's 401(k) I believe the IRS will see this distribution as elective and count towards the employee's annual elective contribution limit. If it's profit sharing the distribution would be counted toward the employer's portion of the limit. However -- profit sharing plans have a formula that's standard across the board and applied to all employees. i.e. 3% of company profits given equally to all employees. One of the benefits of the profit sharing plans is also that you can use a vesting schedule. I'd consult your accountant to see how this specifically impacts your business - but in the case you describe this sounds like an elective deferral choice by an employee and I don't see how (or why) you'd make this decision for them. Give them the bonus and let them choose how it's paid out. Edit: in re-reading your question it actually sounds like you're wanting to setup a profit sharing type situation - but again, heed what I said above. You decide the amount of ""profit"" - but you also have to set an equation that applies across the board. There is more complication to it than this brief explanation and I'd consult your accountant to see how it applies in your situation." "Click on the ? icon next to ""Employer Plan"". This is used to determine if you can deduct your annual contributions from your taxes. For more information on how an employer plan can affect your IRA tax deduction, see the definition for non-deductible contributions. So, we look there: The total of your Traditional IRA contributions that were deposited without a tax deduction. Traditional IRA contributions are normally tax deductible. However, if you have an employer-sponsored retirement plan, such as a 401(k), your tax deduction may be limited.  The $20K difference between $272K and $252K just happens to be $15% of $132,500 which is the amount of your non-deductible contributions." "Open an investment account on your own and have them roll the old 401K accounts into either a ROTH or traditional IRA. Do not leave them in old 401k accounts and definitely don't roll them into your new employer's 401K. Why? Well, as great as 401K accounts are, there is one thing that employers rarely mention and the 401K companies actively try to hide:    Most 401K plans are loaded with HUGE fees. You won't see them on your statements, they are often hidden very cleverly with accounting tricks. For example, in several plans I have participated in, the mutual fund symbols may LOOK like the ones you see on the stock tickers, but if you read the fine print they only ""approximate"" the underlying mutual fund they are named for. That is, if you multiply the number of shares by the market price you will arrive at a number higher than the one printed on your statement.  The ""spread"" between those numbers is the fee charged by the 401K management company, and since employees don't pick that company and can't easily fire them, they aren't very competitive unless your company is really large and has a tough negotiator in HR. If you work for a small company, you are probably getting slammed by these fees. Also, they often charge fees for the ""automatic rebalancing"" service they offer to do annually to your account to keep your allocation in line with your current contribution allocations.  I have no idea why it is legal for them not to disclose these fees on the statements, but they don't. I had to do some serious digging to find this out on my own and when I did it was downright scary. In one case they were siphoning off over 3% annually from the account using this standard practice. HOWEVER, that is not to say that you shouldn't participate in these plans, especially if there is an employer match. There are fees with any investment account and the ""free money"" your employer is kicking in almost always offsets these fees. My point here is just that you shouldn't keep the money in the 401K after you leave the company when you have an option to move it to an account with much cheaper fees." The amount you contribute will reduce the taxable income for each paycheck, but it won't impact the level of your social security and medicare taxes. A 401(k) plan is a qualified deferred compensation plan in which an   employee can elect to have the employer contribute a portion of his or   her cash wages to the plan on a pretax basis. Generally, these   deferred wages (commonly referred to as elective contributions) are   not subject to income tax withholding at the time of deferral, and   they are not reflected on your Form 1040 (PDF) since they were not   included in the taxable wages on your Form W-2 (PDF). However, they   are included as wages subject to withholding for social security and   Medicare taxes. In addition, employers must report the elective   contributions as wages subject to federal unemployment taxes. You might be able to keep this up for more than 7 weeks if the company offers health, dental and vision insurance. Your contributions for these policies would need to be paid for before you contribute to the 401K. Of course these items are also pre-tax so they will keep the taxable amount at zero. If there was a non-pretax deduction on your pay check that would keep the check at zero, but there would be taxes owed. This might be union dues, but it can also be some life and disability insurance polices. Most stubs specify which deductions are pre-tax, and which are post-tax. Warning. If you get the company match some companies give you the maximum match for those 7 weeks, then zero for the rest of the year. Others will still credit you with a match at the end of the year saying if you should get the benefit. It is not required that they do this. Check the company documents. You could also contribute post-tax money, which is different than Roth 401K, for the rest of the year to keep the match going. Note: If you are turning 50 this year, or are already 50, then you can contribute an additional $5,500 "I'm not sure what you mean by ""receive retirement benefits"". If the company had a 401k, that probably is the retirement plan. Few companies have both a 401k and an old-style pension plan, you typically have one or the other. So if your 401k was rolled over into some other account, you have already received your retirement benefits. If you mean that the 401k was rolled over into an IRA and you are asking if you can now start withdrawing from the IRA, see Excel Strategies answer. Short answer: Yes you can, but there's a 10% penalty unless you meet one of the exceptions." Most companies put the company match in your account each paycheck, but your are not generally vested for the match. If you leave before the specified time period then they pull back part of the matching funds.  I knew somebody who did something similar back in the 1980's with their 401K. They put in 8% of their paycheck after taxes; a 100% match was deposited; then they pulled out the employees contribution every quarter. They did this for the 10 years I knew them. It avoided any tax implications, and they were still saving 8% of their pay for retirement. The 401(k) contribution is Federal tax free, when you make the contribution, and most likely State too.  I believe that is true for California, specifically. There was a court case some years ago about people making 401(k) or IRA contributions in New York, avoiding the New York state income tax.  Then they moved to Florida (no income tax), and took the money out.  New York sued, saying they had to pay the New York income tax that had been deferred, but the court said no.  So you should be able to avoid California state income tax, and then later if you were to move to, for example, Texas (no income tax), have no state income tax liability. At the Federal level, you will have different problems.  You won't have the money; it will be held by the 401(k) trustee.  When you try to access the money (cash the account out), you will have to pay the deferred taxes.  Effectively, when you remove the money it becomes income in the year it is removed. You can take the money out at any time, but if you are less than 59 1/2 at the time that you take it, there is a 10% penalty.  The agreement is that the Feds let you defer paying the tax because it is going to finance your retirement, and they will tax it later.  If you take it out before 59 1/2, they figure you are not retired yet, and are breaking your part of the agreement. Of course you can generally leave the money in the 401(k) plan with your old employer and let it grow until you are 59.5, or roll it over into another 401(k) with a new employer (if they let you), or into an IRA.  But if you have returned to your own country, having an account in the U.S. would introduce both investment risk and currency risk. If you are in another country when you want the money, the question would be where your U.S. residence would be.  If you live in California, then go to, say France, your U.S. residence would still be California, and you would still owe California income tax.  If you move from California to Texas and then to France, your U.S. residence would be Texas.   This is pretty vague, as you might have heard in the Rahm Emanual case -- was he a resident of Chicago or Washington, D.C.?  Same problem with Howard Hughes who was born in Texas, but then spent most his life in California, then to Nevada, then to Nicaragua, and the Bahamas.  When he died Texas, California and Nevada all claimed him as a resident, for estate taxes.  The important thing is to be able to make a reasonable case that you are a resident of where ever you want to be -- driver's license, mailing address, living quarters, and so on. You can also roll money from prior 401ks into current 401ks. Call the administrator of the 401k you prefer (i.e., Fidelity/Schwab, whoever the financial institution is). Explain you don't work there anymore and ask if you can roll money into it. Some plans allow this and some don't. So either, 1) You  can roll all your prior 401ks into your current 401k. 2) You might be able to roll all prior 401ks into the prior 401k of your choice if they will accept contributions after you've left. You can't move the amount in your current employer's 401k until you separate or hit a certain age. 3) Like mentioned above, you can roll all prior 401ks into an IRA at any financial institution that will let you set up an IRA. Process: -Call the financial institutions you want to move the money from. Tell them you want a direct rollover. Have them write the check to the financial institution you are rolling into with your name mentioned but not the beneficiary (i.e., check written to Schwab FBO: John Doe account #12345) Tax implications: -If you are rolling from a pre-tax 401k to a pre-tax 401k or IRA, and the money goes directly from institution to institution, you are not liable for taxes. You can also roll from a Roth type (already taxed) account into another Roth type account with no tax implications. If they write a check to YOU and you don't put the money in an IRA or 401k within 60 days you will pay ~20% tax and a 10% early withdrawal penalty. That's why it's best to transfer from institution to institution. 401k vs IRA: -This is a personal decision. You could move all your prior 401ks into an IRA you set up for yourself. Generally the limitations of a 401k are the lack of funds to invest in that fit your retirement strategy, or high expense ratios. Be sure to investigate the fees you would pay for trades in an IRA (401k are almost always free) and the expense ratio for funds in your 401k vs funds you might invest in at a broker for your IRA. Best of both: -You can roll all your 401ks into a single 401k and still set up an IRA or Roth IRA (if your income qualifies) that you can contribute to separately. This could give you flexibility in fund choices if your 401k fees tend to be cheaper while keeping the bulk of your nest egg in low cost mutual funds through an employer account. Last advice: Even if you don't like the options in your current 401k, make sure you are contributing at least enough to get any employer match. Ok, so if I have a 401k, when does it become mine? When I retire and start taking distributions from it? At that point, is the only thing I own what I actually take out or is the full balance mine? Who owns the 401k when I'm contributing? This is just raising more questions. "Your employer sends the money that you choose to contribute, plus employer match if any, to the administrator of the 401k plan who invests the money as you have directed, choosing between the alternatives offered by the administrator. Typically, the alternatives are several different mutual funds with different investment styles, e.g. a S&P 500 index fund, a bond fund, a money-market fund, etc.  Now, a statement such as ""I see my 401k is up 10%"" is meaningless unless you  tell us how you are making the comparison. For example, if you have just started employment and $200 goes into your 401k each month and is invested in a money-market fund (these are paying close to 0% interest  these days), then your 11th contribution increases your  401k from $2000 to $2200 and your 401k is ""up 10%"". More generally, suppose for simplicity that all the  401k investment is in just one (stock) mutual fund and that you own 100 shares of the fund as of right now.  Suppose also that your next contribution will not occur for three weeks when you get your next paycheck, at which time additional shares of the mutual fund will be purchased Now, the value of the mutual fund shares (often referred to as net asset value or NAV) fluctuates as stock prices rise and fall, and so the  401k balance = number of shares times NAV changes in accordance with these fluctuations. So,  if the NAV increases by 10% in the next two weeks, your 401k balance will have increased by 10%.  But you still own only 100 shares of the mutual fund. You cannot use the 10% increase  in value to buy more shares in the mutual fund  because there is no money to pay for the additional shares  you wish to purchase.  Notice that there is no point selling some of the shares (at the 10% higher NAV) to get cash  because you will be purchasing shares at the higher NAV too. You could, of course, sell shares of the stock mutual fund at the higher NAV and buy shares of some other fund available to you in the 401k plan.  One advantage of doing this inside the 401k plan is that you don't have to pay taxes (now) on the 10% gain that you have made on the sale. Outside tax-deferred plans such as 401k and IRA plans, such gains would be taxable in the year of the sale.  But note that selling the shares of the stock fund and buying something else indicates that you believe that the NAV of your stock mutual fund is unlikely to increase any further in the near future. A third possibility for your 401k being up by 10% is that the mutual fund paid a dividend or made a capital gains distribution in the two week period that we are discussing.  The NAV falls when such events occur, but if you have chosen to reinvest the dividends and capital gains, then the number of shares that you own goes up.  With the same example as before, the NAV goes up 10% in two weeks at which time a capital gains distribution occurs, and so the NAV falls back to where it was before.  So, before the capital gains distribution, you owned 100 shares at $10 NAV which went up to $11 NAV (10% increase in NAV) for a net increase in 401k balance from $1000 to $1100. The mutual fund distributes capital gains in the amount of $1 per share sending the NAV back to $10, but you take the $100 distribution and plow it back into the mutual fund, purchasing 10 shares at the new $10 NAV.  So now you own 110 shares at $10 NAV (no net change in price in two weeks) but your 401k balance is $1100, same as it was before the capital gains distribution and you are up 10%.  Or, you could have chosen to invest the distributions into, say, a bond fund available in your 401k plan and still be up 10%, with no change in your stock fund holding, but a new investment of $100 in a  bond fund. So, being up 10% can mean different things and does not necessarily mean that the ""return"" can be used to buy more shares." Your freelance income will not qualify you for the work-from-home deductions, for that you would need a T2200 form signed by your employer. But, you are allowed to be self employed as a sole-proprietorship while still being an employee of another company. If you take that route, you'll be able to write-off even more expenses than those you linked to. Things like a portion of your internet bill can be claimed, for example. But note that these deductions would only apply to offset the self-employment income, so if you're not earning very much from the freelance work, it might not be worth all the hassle. Filing taxes when self-employed is definitely more complicated, and many people will get professional tax preparation help - at least for the first time.