Distribution?
A client tried to do an IRA transfer from his discount broker to an insurance company. The insurance company dropped the ball during the transfer. By the time the money got to the company he changed his mind and wanted the funds sent back to the discount broker. The insurance company sent the funds back( without any indication of the clients name on the check). The client knew approximatly when the check would arrive at the discount brokers office so he went to the office. The check was there. After a long discussion, he proved that the check was his and the broker deposited it into his account. Now he is concerned that this might be viewed as a distribution. All of my resources have told me that it is not a distribution, and that he could do another trustee to trustee transfer if he choooses. Any thoughts?
Permalink Submitted by Alan Spross on Fri, 2009-12-04 16:08
The client first needs to determine the status of all transfers or rollovers to or from this account in the prior 12 months before the current situation even developed. If there were none, then the situation is not critical even if the insurance company issues a 1099R showing a distribution. It sounds like the move to the insurance company was definitely a TT transfer.
A client can do unlimited TT transfers, so the question is whether he has used up the one permitted rollover or still has a rollover open as well. All records of the insurance company to broker transaction should be copied and retained just in case the insurer treats this as a distribution. It would also help if the broker considers it a transfer and then they will not issue a 5498 showing a rollover contribution. The IRS determines that a transaction is a rollover if they receive a 1099R and a companion 5498 from the receiving company for a similar amount. A call to the insurer inquiring if they will be issuing a 1099R or not would be useful because it is always easier to prevent a problem than to correct it afterward. No 1099R is the desired decision. The point here is that if there are no OTHER rollovers, and the insurer treats this as a distribution, all it means it that the one rollover has been used up and moves for the next 12 months MUST be by direct TT transfer. But if there was some prior rollover before all this, AND the insurer treats this as a distribution, it becomes critical to prove that it should NOT be a distribution to prevent it from becoming taxable.