escheatment
Schwab “escheated” a Roth IRA to New York State 2 weeks ago, because of inactivity.
We can retrieve the money from the NYS controller. The account seems to be still open with a tiny amount.
Can we return the money to the Roth as a 60 day rollover?
Permalink Submitted by Alan - IRA critic on Mon, 2015-03-30 03:53
Has the Roth been distributed or is the account still considered a Roth IRA? I don’t know if the state can satisfy the “bank” requirement to be an IRA custodian.
Permalink Submitted by Robert Steinmuller on Mon, 2015-03-30 04:51
I’ll have to clarify this with Schwab. We clearly are not leaving the money with the state. Once we get it canwe then act as if it had been distributed to us and now is being redeposited at schwab?
Permalink Submitted by Jose Morales on Mon, 2015-03-30 15:04
Unfortunately when it comes to escheating retirement assets the states don’t do the greatest job of providing guidance for how these transactions should be classified. Many only state that funds within an “IRA” become escheatable after a period of time after the funds are “become distributable” which many states define as upon attaining the age of 70 1/2. That doesn’t help much for Roth IRAs since there is no mandatory distribution requirement while the account holder is alive. The best way to be sure how the withdrawal of funds will be reported is to contact the IRA custodian that escheated the funds and ask them. More likely than not the funds were withdrawn as a reportable distribution, but I have heard of some banks that code the escheatment of IRA funds as a Trustee to Trustee Transfer. I haven’t looked at NY escheat regulations since last summer but I’ll take a quick look in a moment to see if there is any requirement for how the withdrawal should be reported.
Permalink Submitted by Jose Morales on Mon, 2015-03-30 16:07
This is all the New York State Escheat Handbook says regarding Roth IRAs: Roth IRA We recognize that, while the Roth IRA is not subject to the mandatory distribution rules during the original owner’s lifetime, confusion may none the less exist among both the public and the holder community as to the treatment of this product with respect to the Abandoned Property Law. Accordingly, for the purpose of consistency, OUF will not penalize reporting organizations for treating the Roth IRA in the same manner as the traditional IRA and reporting them in the year the owner reaches the age of 70 ½.
Permalink Submitted by Robert Steinmuller on Tue, 2015-03-31 14:49
urusei2, Thank you for your helpful replies.If this is classified as a distribution, then, once I retrieve the funds from the state, can I redeposit them into the Roth as a “60 day rollover”?
Permalink Submitted by Jose Morales on Tue, 2015-03-31 15:29
If it is within the 60 day window for an allowable rollover, yes. If it’s past the 60 days I think a good case can be made to ask for an extension of the 60 days since the client did not request the funds be withdrawn and the only thing preventing the funds from being rolled over within 60 days was the fact that the funds were not actually in the possession of the IRA owner. If they happen to have the funds on hand to complete a rollover now, after it has been confirmed how the withdrawal was reported, they do have the option of completing the rollover before the funds are returned by the State of New York.
Permalink Submitted by Ben Meyer on Wed, 2015-07-08 13:22
The actual wording of the rollover rule in Publication 590-A, p. 23, is that “You must make the rollover contribution by the 60th day after the day you RECEIVE the distribution…”. (Emphasis added.) Assuming that the state escheat organization is not considered to be your agent, it appears that you may then request the funds from the state escheat organization and make a valid rollover contibution within 60 days of your actual receipt. It would also look better, in case your rollover is challenged, to show that you acted without any delay when you discovered the escheat. The bank may have also acted improperly, contrary to state escheat law, if they did not attempt to contact you before transferring the funds, depending on state law.