Contribution Code to use for an IRA investment?
Client owned shares of a mutual fund in an IRA over a year ago and has since sold it to purchase a different type of investment. Since then, it was discovered that the mutual fund used an incorrect net asset value when the shares were sold and the fund company just now paid out an additional amount to reflect the correct value! The correction resulted in an additional value of $125.68, which client received as a check payable to the Custodian for his benefit.
Client wants to invest that check back into the same IRA, but does not want it listed as a “contribution” (because it’s not a Current Year Contribution, Prior Year Contribution, Rollover or Transfer) but it needs to be listed as something (!) and of course how it is posted will ultimately show up on the client’s Form 5498.
So…what type of investment would this be considered, i.e., how should it be coded by the custodian?
Thank you!
Permalink Submitted by Alan - IRA critic on Mon, 2021-12-06 22:12
If the check is issued correctly, this is not a problem. The check client received should indicate that it is drawn on an IRA account and payable to client FBO client IRA. If so, this is a non reportable TtoT transfer that does not generate a 1099R or a 5498 from the receiving IRA custodian. It also does not count as a rollover with respect to the one rollover limitation. In this situation there is nothing to code and the IRS receives nothing. Client’s IRA statement would indicate an incoming transfer.