Investment plan company ROYALLY messed up Inherited IRA transfer
I’m the beneficiary of an IRA held at a certain plan company for federal employees. They sent me the paperwork for me to decide what I wanted to do, and I promptly filled it out and sent it back saying I wanted it transferred to an inherited IRA I’d established with my own advisor. Nothing happened for a while after that, so I called (a few times over a month and a half or so) and they told me each time that the paperwork was being processed and it would likely take till the end of the 90 days outlined on the paperwork. I finally got an answer that something was in process and should be complete the beginning of the following week, so then I started checking my account online for when the money left (so I could let my advisor know). Well the next week hits, and I see an amount disbursed to me and another amount held for taxes. After 2 hours on the phone with them again, I find out that apparently they “never received my paperwork” and at the end of 90 days is when a check is automatically issued for the beneficiary.
Is there anything that can be done by them to fix this once a check is issued in my name and taxes have been withheld (haven’t received the check)? I have my own copy of the transfer request I made prior to sending, it was notarized, and proof I sent it along with it being picked up from their PO box (detailed tracking as it was sent via certified mail) showing I did my part, they seem to have just dropped the ball somehow.
Currently I’ve pushed for them to raise this to someone higher up to address and given them everything previously mentioned (and more), but am I going to be on the hook for the taxes as a result of this since now I can’t just roll it over into the new account I already set up for this? Or if they acknowledge they messed up and lost the paperwork is this something they can roll back and fix?
Permalink Submitted by Alan - IRA critic on Thu, 2022-09-01 03:39
If you are referring to the TSP, due a change of record keeper in process, a number of people are reporting delays, but yours is a more much serious problem because a distribution check payable to a non spouse beneficiary cannot be rolled over, and it becomes taxable without recourse. Your only hope now is to NOT cash the check when you receive it and immediately return it to the plan by registered mail including your documentation of the info that was sent. Even if the plan eventually agrees that they messed up and restores the funds to processing as a direct rollover, the withholding cannot be fixed and your direct rollover would only be partial. That would result in a 1099R in January for the direct rollover amount coded G and another 1099R for the withheld amount which would be treated as a taxable distribution and not included in the rollover. If this happens, you can reduce any other withholding for the rest of this year since your withholding account at the IRS may have more than required for 2022. The TSP has always treated non spouse beneficiaries pretty shabily, but at least they need to right the ship. Unless you erred with your original paperwork, they appear to have messed up, but there is a small chance they will fix it (except for the withholding) if you did not contribute to this error.
Permalink Submitted by Alvin Bryan on Thu, 2022-09-01 04:24
Once taxes are taken out, is there no hope fixing that portion of the problem? Yes, my withholding may be higher, however wouldn’t I still be responsible for the tax on the amount that was taken out? In this case that’s not a small amount, hense the reason we were transferring it to another inherited IRA in the first place
Permalink Submitted by Alan - IRA critic on Thu, 2022-09-01 14:09
Yes, the distribution used for withholding will itself be taxable, but because 100% of that distribution went to withholding, your taxes paid in will increase much more than the actual tax on that distribution. If the plan admits to error you can always ask them about fixing the withholding, but as far as I know they have no ability to recover it from the IRS, and you cannot either without filing your tax return that generates a refund. Again, you could reduce any other tax payments you would have made for 2022 to recover the withholding sooner.