Accidental distribution instead of rollover
I know someone who “withdrew” an IRA from a bank then went to a credit union and opened a new IRA. I am not sure who the check was made out to when deposited in the credit union. Unfortunately, Social Security now tells them they are reducing their monthly check because of an increase in income. There was no income but rather a transfer. Is it possible to have this reversed by the bank and credit union if they reported incorrectly as a distribution instead of a rollover. Is there a time limit to deposit into the new IRA like 60 days? Thanks.
Permalink Submitted by Joseph Arsenault on Wed, 2009-12-02 15:08
It sounds like a distribution was made, a 1099 was sent out and this was recognized on the 1040. You said the check was deposited into another credit union IRA. If this was done in the within 60 days like you mentioned, it was a a 60-day rollover (assuming the 12 month rule was not violated).
What often happens is the tax preparer will get the 1099, report the distribution and not ask about the funds being re-deposited. So instead of reporting taxable as 0 on 15b of the 1040 the entire distribution is reported as taxable.
If this is the case, they should amend the return and report the distribution, but show 0 as taxable and notate that a 60-day rollover was performed.
As far as the 12 month rule I mentioned, you would want to make sure that the first IRA did not take place in a 60-day rollover to or from it within 12 months of the distribution.
After the return is amended, contact the SS administration and try to rectify the situation.
-J
Permalink Submitted by Al Fry on Wed, 2009-12-02 21:39
Why would SS Benefits be reduced, since even if not rolled over, it was not “earned” income?
Permalink Submitted by Al Fry on Wed, 2009-12-02 22:00
Perhaps they meant more of the SS benefit would be taxed.
Permalink Submitted by Joseph Arsenault on Wed, 2009-12-02 22:06
Good point, I didn’t even think of that..
Permalink Submitted by Edward Czapor on Wed, 2009-12-02 22:13
Al,
I think the SS payment was reduced due to an increase in the medicare premium resulting in a net decrease due to the higher AGI from the distribution.
Ed C.
Permalink Submitted by Alan Spross on Wed, 2009-12-02 22:15
It could be the Part B surcharge for higher incomes deducted from SS checks. For example, if this distribution was in 2008, the extension deadline is 10/15/09 and this is also the recharacterization or corrective distribution deadline. After October when 2008 results are known for most taxpayers, an assessment of 2008 income is done and letters sent to SS beneficiaries if 2008 MAGI is going to result in a surcharge for 2010 Part B premiums.
Also, the taxation of SS benefits is another potential result and that shows up in the same year the income is reported.
Permalink Submitted by Al Fry on Thu, 2009-12-03 02:14
Oh, so that’s why me premiums are so high! Who Knew? Maybe they’ll go down next year, when I’m unemployed.
Permalink Submitted by Al Fry on Thu, 2009-12-03 02:38
Unless I am reading it wrong, an increase in income this year (above $85000 single; $170000 joint) would not affect the Medicare premium until 2011 (pp 21 & 123 of “Medicare and You 2010”). Apparently, they use the tax return from 2 years ago to determine the Premium for this year.
Permalink Submitted by Al Fry on Thu, 2009-12-03 18:38
Just received notification of Part B premiums for 2010, and yes they are based on 2008 tax return, OUCH! Oh well, I guess they’ll go down in 2012, unless King Harry and Queen Nancy screws it up!
Permalink Submitted by Alan Spross on Thu, 2009-12-03 19:04
Al, I agree that there is a concern about what adjustments will be made automatically and which ones will require that a request is filed. Right now I have been waiting for 6 months for a very simple refund of one month’s duplicate payment of Part B (96.40) because SSA took out 2 months worth for May, 2009. Seeing how this is being handled, I would be concerned about how many follow ups will be required for those whose income bounces in and out of the surcharge range, for a combination of reasons for which only some of them justlfy an exception. And there is no way to start addressing problems until the notification comes out just a month of two before the January payment subject to adjustment is issued.
This will also be affected by 2010 conversion rules, where the 2011 and 2012 split could raise premiums in both 2013 and 2014. The indicated premium for 2010 went up around 15% I think, even though most people will not pay it due to the hold harmless provisions preventing the SS check from going down. Still, the indication is that medical inflation could eat up SS COLAs for several years because the annual premium does not go away and will probably be increased 10-15% every year now. I think conversion analysis should just include an estimate of the added Part B premium due to the conversion and it should be considered as a part of the marginal income tax rate. It will therefore raise the current tax load for the conversion by perhaps 1 or 2%.
Permalink Submitted by Al Fry on Thu, 2009-12-03 21:05
How can I get a report of prenium payments? Perhaps I should check mine. My deposit amount does not help much, bacause it was changing a lot due to earned income subject to SS tax, which increased the benefit payments. Al
Permalink Submitted by Alan Spross on Thu, 2009-12-03 21:37
At this point, probably easier to wait for the 1099 SSA which will show Medicare premiums for 2009. But it may not include any premiums you paid directly as opposed to those deducted from SSA payments. Of course, there is always the dreaded 800 number.