72t transfer error. Help!
my client has made the same 72t w/d of 30,980 for 4 years now. We typically move bond fund shares with 1 w/d and then make a 2nd w/d in cash to equal 30,980 exactly. When filling out his 72t w/d this Monday he transposed a share number and we ended up with 31,500 in 72t distribution. I know that if we don’t fix this the whole 5 years is penalized. My broker/dealer will not reverse or adjust this distribution.
My client has not made any rollovers in or out of this account in awhile. Can I rollover a portion back into his IRA to net out 31,980? Is that possible? can i just move cash back into the IRA to net out the right amount? Any help would be greatly appreciated. Alternatively, if another method to fix this exists please let me know. Thanks to everyone for reading.
Permalink Submitted by Alan Spross on Wed, 2012-02-15 20:29
As long as there have been no other rollovers in the prior 12 months either to or from this IRA account, the excess amount can be rolled back into the IRA.
However, with no cash involved, some challenges exist here. The NAV of these shares changes daily, and since there is only one rollover allowed, there is only one chance to get this right. Rather than looking into fractional shares if that is even possible, he should probably roll back plenty of shares so that the net distribution falls a few hundred dollars short of the 30,980. He has all year to take out the remainder of the 30,980 and obviously when he is ready to do that, shares should be sold and cash distributed so that exact 30,980 is the net distribution. Note that THE SAME PROPERTY as distributed must be rolled over, so he cannot sell the shares and roll the proceeds back, he must roll shares back to the IRA.
This procedure of necessity will produce a 1099R in excess of the 30,980, and he will have to report a rollover on line 15b of his 1040, so that the net distribution exactly equals 30,980. That should be OK with the IRS even though a 72t distribution is not eligible for rollover. The IRS does not consider excess amounts over the 72t calculation to be 72t distributions.