SEPP Rollover Issue
Client tool 13476 as SEPP distribution in April 2010 set up as automatic distribution for next 5 years client is 56
Janurary 2011 Client takes manual SEPP distribution 13476
May 2011 automatic distribution 13,476 client gets check for 10781 and the other 2695 is withholding. Client redeposits 10781 as 60 day roll over. Two weeks later she asks about the withholding amount.
We are still in the 60 day period, is there any way to preserve her SEPP distribution? If not, what is the best way to handle?
Permalink Submitted by Alan Spross on Fri, 2011-05-20 20:25
Client needs to come up with the additional 2695 and roll it back to the IRA account. Since the 13,476 was a single distribution, having different dates for the rollovers is OK as long as the money is back in the IRA within 60 days from the distribution. This combined rollover exhausts the one permitted rollover for the next 12 months, so there is no longer a margin for error.
Sounds like several things went wrong here but client was lucky this time. Having taxes withheld from the IRA distribution is not usually a good idea since miscommunication over withholding is another way a plan can be busted. Client needs to get some safeguards in place to prevent future problems with the plan.