Annuity Rollover Issue
An individual, call him Joe, purchased an Annuity using IRA money using a direct transfer from one custodian to another. When the annuity was delivered Joe did not accept delivery because it was the wrong product. Normal practice and procedure by the Insurance company is to return the funds to the original custodian because the transactions was never completed. In this case they sent a check to Joe for the entire amount of the transfer. (Joe did not sign any papers requesting an IRA distribution). Joe now sent the money back to the Insurance company requesting the correct product which the insurance company issued but in a Non-qualified form not an IRA.
This occured in Dec. 2011. Joe’s accountant now informs him he has an $30,000 tax liability because of the insurance company sent a 1099 stating the funds were an IRA distribution.
What should Joe do?
Permalink Submitted by Bruce Steiner on Wed, 2012-07-25 15:13
The IRS has discretion to waive the 60-day deadline for rolling the money back into an IRA “where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the [IRA owner].” Secton 408(d)(3)(I).
We’ve obtained rulings in about a half dozen cases allowing rollovers beyond the 60-day period.
As a practical matter, he’ll have to show that there was an error on someone else’s part. In other words, as a practical matter, he’ll have to get the insurance company to cooperate, which they might be willing to do if they’re afraid they might have some liability.
Permalink Submitted by Denise Appleby on Wed, 2012-07-25 18:38
[quote=”[email protected]“]An individual, call him Joe, purchased an Annuity using IRA money using a direct transfer from one custodian to another. When the annuity was delivered Joe did not accept delivery because it was the wrong product. Normal practice and procedure by the Insurance company is to return the funds to the original custodian because the transactions was never completed. In this case they sent a check to Joe for the entire amount of the transfer. (Joe did not sign any papers requesting an IRA distribution). Joe now sent the money back to the Insurance company requesting the correct product which the insurance company issued but in a Non-qualified form not an IRA.
This occured in Dec. 2011. Joe’s accountant now informs him he has an $30,000 tax liability because of the insurance company sent a 1099 stating the funds were an IRA distribution.
What should Joe do?[/quote]
Adding to Bruce’s response…if the error was made by the financial institution, the amount can be rolled over to the IRA without a PLR, as long as certain requirements are met. These include:
• The assets were delivered to the financial institution within 60 days of receipt
• The rollover procedures were followed.
• The assets are deposited to the IRA within one year of receipt
Denise
Permalink Submitted by Mark Fried on Wed, 2012-07-25 21:41
Thank you!!!!