Qualified Rollover into IRA mistake
In May, a client’s mother passed away with retirement from a teacher’s pension. The paperwork was prepared incorrectly and the funds were rolled over into the beneficiary (daughter’s) IRA. The deceased mother was over 70 1/2. I went to the CPA who prepared the returns for the family and they did not know how to unbundle the IRA. What is the best solution? The only good thing is the amount is only $5,000.
Options I see available:
1) TTEE to TTEE transfer of $5,000 into separate IRA and take RMD as if it was an inherited IRA
2) Remove $5,000 altogether and pay tax, put $5,000 back in via Traditional IRA contribution for the year
3) ANY OTHER SUGGESTIONS????
Permalink Submitted by Al Fry on Thu, 2007-12-20 16:31
I’ll vote for # 2. Simplest and easiest!
Permalink Submitted by Denise Appleby on Sun, 2007-12-23 21:31
Nice username privatelakehome.
So it sounds like the [url=http://www.retirementdictionary.com/Required-minimum-distribution.htm%5DRM… not taken from the pension before the rollover occurred ( this may be stating the obvious, but experience has taught me to never assume )
Option 1 does not apply, because the RMD has already been satisfied. When the distribution was made from the pension account, this (distribution) included the RMD, and the RMD amount should not have been credited to the IRA. As a result, the RMD amount created an ineligible credit to the IRA.
The amount must be treated as if it was a distribution that was not rolled over ( for the year the distributon was made), for purposes of including it on the beneficiary’s tax return.
As Al said, option 2 is the option to use. The amount must be removed from the IRA as a ‘return of [url=http://www.retirementdictionary.com/Excess-contribution.htm%5Dexcess’[/url], and should be accompanied by any [url=http://www.retirementdictionary.com/nia.htm%5DNIA%5B/url%5D. The deadline to remove the amount as a return-of-excess is the tax filing deadline for the beneficiary, including applicable extensions