Bene IRA Mistake
I have a client that put funds that SHOULD have gone into a Bene IRA into her traditional IRA. Part was cash and part was a piece of real estate that is held at a self directed IRA firm. The mistake was made over a year ago.
1) Any solution for removing it from the traditional IRA and placing it into a Bene IRA?
2) What are the consequences of this mistake. I am expecting them to be horrific.
Permalink Submitted by Alan - IRA critic on Tue, 2021-04-13 19:19
Right, a horrific taxable distribution with no good solution. This is a lump sum taxable distribution per the 1099R (death code 4) forms client should have received. Further, the deposit into the owned IRA must be treated as an excess IRA contribution and removed with earnings. If this error was made in 2020, client has until 10/15 to have the excess removed, and should explain to the owned IRA custodian why the “rollover” turned into an excess regular contribution. When the excess is returned with earnings, only the earnings will be taxable, but on the 2020 return because the excess contribution was made in 2020. Therefore, this should be done before filing 2020 to prevent having to amend 2020 to add the additional income from the earnings return.