unauthorized IRA withdrawal
Greetings; I found this forum via a Google search, and I hope some of the folks here can help.
FACTS
* Client initiates an IRA transfer from the receiving institution (a broker). The original custodian, a Federal Credit Union, receives the IRA transfer request from the Broker.
* The FCU then moves the IRA money into a the client’s checking account, then wires it to the new custodian. (The client is not told in advance.) Thus, it created a ‘rollover’ when none was requested. It records the transfer as a ‘withdrawal’.
* However, Broker (the new custodian) correctly records the transfer as just that — not a rollover, not a contribution, but a non-reportable transfer.
* Therefore: FCU will issue a form 1099-R, but Broker will not issue an (offsetting) form 5498.
PROBLEM
The FCU won’t correct the ledger entries, won’t change the description on the statement to “transfer”, and won’t confirm if they will or will not issue a 1099-R. Essentially, the reply is “well, that’s how we do it here.”
QUESTION
Would any regulator (IRS, Dept of Labor) take action against the bank for an unauthorized withdrawal (from the IRA account to the checking account)? If so, please help w/ dept, contact info etc.
Permalink Submitted by Alan - IRA critic on Sun, 2013-02-10 19:04
My guess would be that the NCUA would be the most likely agency to contact to pressure the FCU to either rescind the 1099R or not issue one if this is a 2013 transfer. http://en.wikipedia.org/wiki/National_Credit_Union_AdministrationI would cite not only the 1099R-5498 mismatch, but also the restriction the client has with respect to the one rollover rule per 12 month period. Client can therefore not do another rollover from the receiving IRA account for the next 12 months, and if a distribution is taken, the IRS has no authority to waive the one rollover rule. Further, if client did an indirect rollover in the prior 12 months, this creates an immediate taxable distribution for the current distribution. Of course, the client could present evidence to the IRS that the distribution itself is in error if this becomes necessary. This can all be pointed out to the NCUA, in addition to the obvious error in meeting the requirements of the IRS 1099R instructions with respect to non reportable transfers. Perhaps indicating that the client intends to involve the NCUA in this matter alone will be enough to get assurances from the CU.
Permalink Submitted by Joseph Keeng on Sun, 2013-02-10 20:46
Alan, Thanks for your comments. From your experience, does the IRS care at all? (Incorrect reporting puts a burden on them, as well as on the taxpayer.)
Permalink Submitted by Alan - IRA critic on Mon, 2013-02-11 00:30
My impression is that the IRS would not be particularly interested in this issue. If the facts were brought to their attention, they would probably not consider the transfer as a distribution with respect to the taxpayer, but would probably just chalk it up as a minor custodian error, not worth their time in taking up directly with the custodian.