Quite honestly, the easiest way to retrieve as much of the over withheld Taxes as possible is through his Tax return. On the back page of his 2008 Form 1040, include the excess Taxes mistakenly withheld on the Taxes Withheld line. Then include this same amount as a Pension distribution on the front page of his Form 1040 (assuming that the 401(k) contained only pre-Tax monies, which most still do).

Unfortunately, this means (effectively) that a distribution has still been made. Since this also means that a (larger) refund will come to him, he may choose to place this extra money into an IRA. An IRA has the same Tax features as a 401(k). There are also far more options for investing in an IRA than any 401(k) will ever likely have.

In the year after the fraudulent distribution, take as much of the IRA contribution as possible as a deduction on this year's Tax return (if he sets up the IRA in 2011, then on his 2011 Tax return). Any amount that cannot be deducted (due to certain limits on IRA deductions) will be after-Tax money growing in the IRA. This will be money that comes out in retirement with less Tax due on it than if it had all stayed in his 401(k).

Other than that, the only options are to attempt to persuade the IRS to return the incorrectly withheld Taxes directly to the 401(k) (extremely unlikely), or bring a lawsuit against the employer to attempt to get them to make his 401(k) account whole (a generally messy affair). Instead, it is suggested that he make the best of a less-than-perfect situation and then get back to living life. Good luck!

*Tax Disclaimer* The above material is not to be construed as a complete analysis of all Tax considerations. The opinion issued should not be used to avoid or evade Taxes, nor should it be relied upon to avoid any proper federal and/or other Tax-related penalties. Accordingly, this material is not intended or written to be used (and a Taxpayer cannot use it) for the purpose of promoting, marketing, and/or recommending to another party any Tax-related matters. Please be aware that Tax laws are subject to change at any time. Consult your trusted independent Tax advisor for the latest information/interpretations of Tax law.