Ryebrook wrote:1) Have the refund paid directly to me.
2) Have all previously untaxed contributions and interest transferred directly into a qualified retirement plan or IRA, and have previously taxed contributions refunded to me.
3) Have part or all of my previously untaxed contributions and interest transferred into a qualified retirement plan or IRA, and the balance paid directly to me.
At first glance, I would probably take the $2,000 that is already taxed paid directly to me, and have the remainder invested in a "qualified retirement plan or IRA."
However, if I were to do this, would the remaining money ($35,000), be taxed before it was invested in the qualified retirement plan or IRA?
No, but it would become untaxed money in the IRA (that is, a deductible IRA); you would owe tax when you withdraw from the IRA or if you choose to convert it to a Roth IRA.
Could I simply set up an IRA account at Vanguard, and have the money transferred to that account without taxes taken out? If I were to do this, would I still need to begin taking distributions from it?
This is a good deal; contact Vanguard for the procedure, as Vanguard may need to send some forms to Michigan.
Since it is your own IRA, you don't have to take distributions until you turn 70-1/2. (In contrast, if you inherited your mother's IRA, you would have to start taking distributions immediately on an IRA schedule, or else pay tax on the whole thing within five years.)