Can a correction be done?
Non-spouse inherited a brokerage account containing a note with a survivor option. The beneficiary elected to execute the survivor option, which would keep the note in the original IRA until the survivor option can be executed at the next interest payment. Once it’s executed, the cash would move to the beneficiary IRA. The brokerage firm erroneously moved the note to the beneficiary IRA. Can a correction be done to move the note back to the original IRA without tax or other implications?
Permalink Submitted by Alan - IRA critic on Wed, 2024-01-10 18:32
No, once a balance is transferred to a beneficiary IRA it cannot be transferred back to an owned IRA without triggering a taxable distribution and excess contribution to the owned IRA. Apparently, the issuer would have to accept an exercise order from the beneficiary PRIOR TO having the instrument transferred to an inherited IRA. Most likely, a similar situation might occur with a brokered CD in an IRA. Perhaps a beneficiary could have other assets in the IRA transferred to an inherited IRA and then they could name their own beneficiary, but survivor option or death put instruments would have to remain in the owner’s IRA until the option was exercised. Therefore, actually taking advantage of these options can create a hassle for the beneficiary.