RMD ERROR
Client age 75 satisfies full RMD in June 2010 by journaling assets to non ira account. In Dec 2010 due to an error on the part of custodian the same amout of securites are jouranled again thus creating unwanted income for 2010.
I seem to recall there may be a fix here due to custiodain error that would not require a ruling. Amounts are too small to justify coSt of a riling.
Is there a fix here?
Permalink Submitted by Alan Spross on Wed, 2011-01-12 00:14
Chuck,
He could simply roll the funds back to the TIRA if he has a rollover available under the one rollover rule. And if he didn’t have a rollover available, he could convert the second distribution to a Roth IRA, and then recharacterize it back to the TIRA. This two step process does not count as a rollover for the purposes of the one rollover per 12 month limitation.
Or he could try to pressure the custodian to take back the securities and not report the second distribution on a 1099R. I don’t know if there is an IRS approved recission for cases where custodian error is 100% responsible, but since there is a fix here without the custodian’s help, it is probably not worth the effort to battle with the custodian.
Permalink Submitted by charles lore on Wed, 2011-01-12 16:53
Alan on your second point , the ROTH conversion, how can a 2010 conversion for that money possible take place at this point? The custodian is saying that a conversion can only be done by going directly from TIRA to Roth. Now that funds are in non IRA isnt it too late? Please elborate on the conversion idea.
Thanks
Permalink Submitted by Alan Spross on Wed, 2011-01-12 20:36
It’s not too late because the funds were distributed in 2010, and it is still within the 60 days needed to complete the conversion. It will be considered a 2010 conversion because the distribution was made in 2010. The custodian is incorrect about direct transfers being the only way to convert. They can also be done by indirect 60 day rollovers to a Roth IRA. (Ref Pub 590, p 62, 09 edition).
If the conversion was completed and then recharacterized, he would not need an 8606 on his 2010 return, but should simply attach an explanatory statement about the conversion date and amount and the recharacterization date and amount.
Permalink Submitted by charles lore on Wed, 2011-01-12 21:06
Alan thank you. It was fun showing custodian they were wrong while I was armed with pub 590!