Non- Spouse Inherited IRA Tax Problem
Last year I had a Pershing (CUSO) financial advisor inform me that we could move a non spousal inherited IRA into another IRA account that now is tied to a mutual fund without any tax penalties. We trusted this person and the credit union that he is working with to handle the transaction correctly.
This year I received a 1099-R from the credit union with Box 7 distribution code: 4 .
The transfer was done with a check payable to Pershing and the new account does show as an IRA FBO / PERSHING AS CUSTODIAN BENEFICIARY OF DECEASED *******.
I have the following questions:
1) Was this even legally allowable what they did?
2) Was this done correctly and if so why am I receiving a 1099-R that appears I took full distribution of all the funds?
3) If this was a trustee to trustee direct transfer I would think I should never have received the 1099-R at all. If this was done incorrectly what am I to do?
Thank you all for your information.
Permalink Submitted by Alan - IRA critic on Sun, 2022-03-20 23:44
Pershing would not have set up this inherited IRA titled as such if they did not receive a transfer. Therefore, the CU made the error of reporting the transfer as a distribution with a 1099R. The credit union must rescind the 1099R or the IRS will expect that the 1099R be reported as taxable.
Permalink Submitted by Vince Botteon on Mon, 2022-03-21 01:26
Hello Alan, Thank you so much for you response. I forgot to mention that I did bring this error up to the credit union and they refused to rectify stating: “Your tax accountant should figure this out!” I am so confused since they defer back to the CU. What should I do?
Permalink Submitted by Alan - IRA critic on Mon, 2022-03-21 03:05
Whoever handled this at the credit union may have miscoded the transfer as a distribution, which triggered the 1099R which should not have been issued. Since the only way to get this balance into an inherited IRA at Pershing was via a transfer, you need to talk to someone at the credit union with some authority – or better yet if your financial advisor was involved, he should talk to the credit union to get the 1099R rescinded. Pershing is a very large and prestigious financial clearing house, while the CU is not. It will be very difficult to take this up directly with the IRS because their computers all react to the 1099R which shows a taxable distribution that never occurred. That is why this needs to be corrected at the source, which unfortunately is the CU. You might tell them that the IRS will not be pleased with them when they find that the CU is issuing incorrect 1099R forms, and I guess it is possible that they are doing this in many more cases than just yours.
Permalink Submitted by Vince Botteon on Mon, 2022-03-21 11:09
Again, Thank you Alan. I will keep you posted.
Permalink Submitted by Vince Botteon on Fri, 2022-04-01 14:55
UPDATE: The credit union is taking resposibility but will not rescind the 1099R. It appears they are going to issue a new corrected 1099R. I presume 2a “taxable amount” will now be zero? I hope this will suffice for the IRS? Any info on this would be greatly appreciated.
Permalink Submitted by Alan - IRA critic on Fri, 2022-04-01 17:12
It depends on how the corrected 1099R reads, since a corrected form voids the original 1099R. The corrected 1099R should show 0 in Box 1, 0 in 2a and Box 7 should be blank, or at least it should be obvious to the IRS that no distribution was made. As such, this would not be reported on your return.