Partial Rollover
I have a situation where a client is able to rollover part of a pension that was part of Georgia Pacific before the current company bought them out a number of years ago. Part of the money is a return of contribution and the rest is “qualified”. Having been part of the Elite group for such a short period I know enough that when I get ONE check from Vanguard that has combined the money, I am uncomfortable with what may happen (the loss of the tax free/return of basis) if the rollover is completed. I spoke to Vanguard and they will not split the checks (even though it was asked to be that way in the paperwork). They said there is a letter detailing out the different monies. We do not have this letter and have asked and even begged many times. Is there a 60 day rollover limit on the money (the check is properly made out to the new custodian)? What should I do…I am uncomftable having the check deposited until I am clear. Thank you ahead of time for your help.
Permalink Submitted by Alan Spross on Mon, 2008-06-02 20:52
Usually, the after tax amount is issued in a separate check paid to the employee (no withholding), while the pre tax amount is moved by direct rollover to the IRA. There is two 1099R forms issued for the different amounts. The employee then has the choice of placing the after tax amount in a taxable account or rolling it over within 60 days to the IRA. If the rollover is made, Form 8606 is filed to report the added after tax basis to the IRA in the same manner as if a non deductible contribution was made.
Making a single check for the entire amount to the new custodian eliminates the option of not rolling over the after tax amount. But if the client wants to rollover those funds anyway, all he needs to do is make sure the 8606 is filed to report the added IRA basis. The after tax amount must still be properly identified by Vanguard on the 1099R forms issued next January.
If the current check is made out to the new custodian, the 60 day limit does not apply since this is still considered a direct rollover and the client does not have constructive receipt of any of the funds. But I do not see any reason to delay submission to the IRA custodian unless there is a paperwork glitch to be resolved.
I assume that there is no NUA stock distribution here, and hopefully that was considered if he has any highly appreciated employer shares….