My client’s father passed away January of 2010 at age 83 and left a 401(k) to his two children, who were named beneficiaries. The father was actively taking distributions from his 401(k)at the time of his passing. One purchased a fixed annuity and the registration was set up correctly as a beneficiary ira. That account is fine.

The other sibling used a different company to purchase a fixed annuity in the amount of approximately $120,000. However, the account was set up mistakenly as a traditional ira, not a beneficiary ira. It was our intention to have it set up as a beneficiary ira. It was my mistake on the application. The clients age at issue for the mistitled ira in 2010 was age 52. During 2011, the client withdrew $10,000.00 and had tax withheld. During 2012, the client withdrew $11,542.36 and had taxes withheld again. In 2013, client withdrew $54,444.44 (keeping $4,000.00 for himself) and had federal taxes of $444.44 withheld, with the remaining $50,000 was rolled over to a beneficiary ira brokerage account. Advisor was not aware that the account had originally been set up as a traditional ira until a notice from the IRS in December 2013 asked for a 10% tax on the premature distribution in 2011 as the client was under the age of 59 1/2 and the 1099 was coded 1. I contacted the fixed annuity insurance company to see if the account could simply be reregistered as a beneficiary ira. But, because the company does not offer a beneficiary ira for this product, it cannot be done.

From reading other similar questions in the forum, the consequences for the client, and me as the advisor, appear to be extremely negative. Is there any possibility that there is a more positive interpretation based on these specific circumstances–for example, a private ruling?