Rollover IRA check NOT rolled over for 2 years!

Submitted by Carol Redd on Thu, 2024-02-29 15:10

Facts:
Client says she requested 401K distribution of $805.60 in 2021 from ADP Retirement Services.
She rec’d a check made out to Enrichment FCU and herself,
ADP Retirement Svcs issued a 2021 Form 1099R Gross Dist $806.50 and Taxable $0

She was a struggling newly-divorced single mother of 4. She says she knows she requested a distribution, but I’m fairly sure that when she learned she’d have 20% FIT w/h she settled on a Rollover to an IRA at the local credit union. Regardless, she put the check up and forgot about it completely… UNTIL 2023!
She took the check to the CU, and of course, it was past the 180 days so the CU couldn’t cash it!

ADP Retirement Services REISSUED the check 3/22/23 Payable to:
Enrichment FCU Rollover TTE/CUST FBO “individual”
DIRECT ROLLOVER

CU CASHED the check in 2023 w/o setting up an IRA!

My thought is that ADP has an obligation to issue a Corrected 1099R for 2021 and issue a 2023 1099R showing the same as 2021. Then, CU must set up an IRA effective on date of cashing that check, and issue a 2023 1099R for $805.60 / $805.60 taxable.

Thanks for any HELP you might offer!!!



Submitted by Alan - IRA critic on Thu, 2024-02-29 15:59

ADP will not reissue the 2021 1099R, but neither should they issue a 2023 1099R because it’s the same money that was distributed in 2021. You did not mention any 2023 1099R being issued by the plan. I assume the 1099R from 2021 was reported on her 2021 return as a non taxable direct rollover, despite the rollover never having been completed.
The solution is to attempt to complete a delayed rollover per Rev Proc 2020-46 (link below) by completing a self certification form using the first reason listed on that form (error by financial institution). However, this will require that the CU accept the form and accept the rollover contribution, and they might not understand this procedure to complete this, or be willing to accept the late rollover. But accepting the rollover contribution due to the recent botched rollover transaction may cover over the fact that the earlier error by the client (misplaced check) occurred in 2021. If the CU will not cooperate by accepting the form, the funds cannot be rolled over and the 2021 return must be amended to report the earlier 1099R as a taxable distribution subject to the 10% penalty. If CU will not accept the form, client could try another larger institution mor likely to understand the process, but since any new institution was not involved, chances are slim that they would accept the rollover funds with the self cert form. 
Microsoft Word – rp-20-46.docx (benefitslink.com)

Submitted by David Mertz on Thu, 2024-02-29 20:48

Had the check simply been deposited directly into a traditional IRA, this would have completed the direct rollover reported in 2021 and there would be nothing more to do.  There is no deadline for completing a direct rollover.
By cashing the check instead of depositing the money into a traditional IRA, the distribution now fails to be a direct rollover, so the 60-day rollover deadline applies relative to the 2021 distribution date applies.
Because CU should not have cashed the check but should have deposited it directly into a traditional IRA based on the way the payee was described on the check, the only listed reason that would seem to apply under Rev. Proc. 2020-46 would be 3.02(2)(a):  an error was committed by the financial institution receiving the contribution or making the distribution to which the contribution relates.

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