IRA overpayment
Do I have any course of action? 3 years ago when switching companies I rolled over my 401(k) from my previous employer to my new employers plan. The process was very confusing and the first check was mailed to the wrong address and then canceled. A second check was sent to the correct address. Before the first check was canceled, it was re-routed and basically both checks were put into my new IRA. Basically doubling my money from my old plan into my new plan. Again this was 3 years ago and I just received a letter informing me they found this out and are asking for the money back from the first check that went into my new IRA. Kind of confusing, but do I have any course of action or just simply give the money back?? Thank you.
Permalink Submitted by Alan Spross on Wed, 2009-07-29 21:08
You didn’t really think that this error would go undiscovered did you? The first plan has full legal recourse to recover this money from your current account, but I cannot tell you what agreements will have to be signed etc or even how much they legally can recover. It would not be unreasonable for them to pursue lost interest on the funds, and they are certainly not responsible for any losses that these funds may well have suffered over this time period.
For example, not counting new contributions made to the new plan, if the rollover should have been 100,000, but was doubled, and then lost 25%, the total value will have dropped to 150,000. They are entiteld to at least 100,000, which would reduce your remaining value to 50,000, and even less if they have a legal right to some interest on the funds. My guess is that they will have to produce evidence of a duplicate distribution, and you would pass it through to your current plan administrator who would authorize a direct transfer of the funds back to the original plan. This should not be a taxable event for you. If the first plan demands something you feel is not reasonable, you will probably have to hire an attorney to represent your position. If all they ask for is the original amount, I would feel rather lucky. You should also not try to withdraw any funds, as this should be handled directly between the two plan administrators with your agreement, so the IRS is not brought into this.