Son left me a 403 Annuity. I moved the proceeds into a new Vanguard rollover IRA

Submitted by Kenneth Gowdy on Wed, 2018-02-21 01:44

After more research my questions are:
1) Did I do more than one rollover to an IRA in one year?
2) Being a non-spouse should I have done a trustee to trustee transfer instead?
3) If necessary, is there a procedure to back out the new Vanguard rollover IRA that I have already funded?
I retired in Feb 2017 and rolled over my Fidelity 401k into an IRA.
My son passed away in Sep 2017 and left me a $7,500 403(b) Annuity (school teacher).
I took a %100 cash distribution from the 403(b) and received a 1099-R showing %20 taxes have been withheld for 2017. I sent the amount I received plus the %20 to Vanguard within 60 days hoping to reduce my tax.
Thanks for your expertise!



Submitted by Alan - IRA critic on Wed, 2018-02-21 02:15

  1. As a non spouse beneficiary you can only move the 403b by direct trustee transfer. Since you received a check made out to you personally (not to the inherited IRA custodian), that amount is taxable and not eligible for rollover. Therefore, the number of rollovers does not matter since the 7,500 was not eligible to begin with.
  2. Yes, that is the only option to move an inherited employer plan balance into a non spouse inherited IRA.
  3. OK, you made an error here, but at least the amount was not large. You will have to report the 7,500 as a taxable distribution on lines 16a and 16b of Form 1040. Claim credit for the withholding on your tax return. You also have to remove the excess contribution to your rollover IRA plus any allocated earnings on that contribution. Since the excess IRA contribution was made in 2017, the earnings that must come out with the 7500 will be taxable on your 2017 return. No 10% penalty on the earnings if you are over 59.5. 
  4. Call the IRA custodian and tell them that the 7500 was not eligible for rollover and is therefore an excess IRA contribution that you need returned. They should process that in no more than 10 days. When you get the money, the amount that exceeds 7500 will be the earnings that is taxable on your 2017 return. Again, it is fortunate that the amount was modest. If your IRA custodian knew where this money came from they should have told you that it was not eligible for rollover.

Submitted by Kenneth Gowdy on Wed, 2018-02-21 10:09

Thank you for your quick and comprehensive reply.

Submitted by Kenneth Gowdy on Sun, 2018-03-11 21:55

   Hi, thought I would follow up to see if there are any forms I may be missing before I file my 2017 return. I did have Vanguard move the non-deductible earnings out of the Rollover IRA which now has a zero balance and moved the funds to a non-retirement account. At the same time I filled out an “Excess Contribution Removal” form online with Vanguard. I reported $177 in earnings and I am over 591/2. I feel lines 15a, 15b, 16a, and 16b include everything I am required to report. Using H&R Block software it did ask the question and created a “Statement Explaining Return of IRA Contributions” and is including the statement in the 2017 return. I was concerned with not filing form 8606 but it does say don’t file “If, in 2017, you made traditional IRA contributions or Roth IRA contributions for 2017 and you had those contributions returned to you with any related earnings (or minus any loss) by the due date (including extensions) of your 2017 tax return, the returned contributions are treated as if they were never contributed.” I expect in May 2018 I will receive form(s) showing what was contributed for all of 2017 and possibly need to file an amended return?  Thank you so much for your help.          

Submitted by Alan - IRA critic on Sun, 2018-03-11 22:28

While you will get a Form 5498 in May showing a 7500 rollover contribution and also the Fidelity 401k rollover. You will not have to amend your 2017 return because you withdrew the excess contribution and explained that in your statement.  The IRA custodian does not report on Form 5498 contributions that you removed, only the ones that you made. So even though you made an excess contribution as a rollover, your statement that you removed it is all that is needed.

Add new comment

Log in or register to post comments