Disqualified rollover

Submitted by Stephen DeFilippis on Fri, 2008-04-25 14:36

I inadvertently made two rollovers within a 1-year period. The IRA custodian accepted the second rollover and coded it as a rollover. On my tax return, I paid the tax and penalty on the disqualified amount. The IRA custodian won’t let me remove the disqualified rollover and now I’m concerned I’ll be taxed on it twice when I remove it. How do I remedy this situation?



Submitted by Alan Spross on Fri, 2008-04-25 20:20

What were the dates and amounts of each rollover distribution, and the dates when each rollover was contributed; also identify the IRA account – eg.
12/14/07 distributed 5,000 from IRA #1 and on 1/14/08 deposited it into IRA #2.

The solution very much depends on the details of the transactions. Also, other than these two rollovers, any others in the prior 12 months?



Submitted by Stephen DeFilippis on Mon, 2008-04-28 15:03

Here are the details:

1/11/07 $10,280 distributed from IRA account #665*****
3/09/07 $10,280 rolloed over into IRA account #665***** (same account)

7/09/07 $5,008 distributed from IRA account #665*****
9/05/07 $5,008 rolled over into IRA account #665***** (same account)



Submitted by Denise Appleby on Mon, 2008-04-28 17:32

Swed.
I don’t think Alan meant that you should provide your entire account number.
If this is a real account number, you may want to edit the post and have it deleted.



Submitted by Denise Appleby on Mon, 2008-04-28 17:39

[quote=”swdea”] The IRA custodian won’t let me remove the disqualified rollover [/quote]

You may want to talk to someone else. They do not have the right to tell you that you can’t take your own money. You may want to ask them what is the reason behing their response .

The $5,008 is the ineligible rollover amount. You need to submit a ‘return of excess contribution’ request to the custodian. They may have their own documentation/forms that you need to use.
Check your IRA agreement (or ask them), if they will calculate the earnings on the excess amount . If not, you may need to calculate it yourself or with the help of your tax/financial professional. The formula can be found here [url]http://www.retirementdictionary.com/nia.htm%5B/url%5DWhen submitting your request, be sure to note the earnings amount separately from the excess amount, so that they will know how to process and report the transaction/s.



Submitted by Stephen DeFilippis on Mon, 2008-04-28 17:52

How do I edit the post?



Submitted by Denise Appleby on Mon, 2008-04-28 17:56

There should be an ‘edit’ button, visible (to you) only on your posts.
Click on that, make your changes, then click ‘submit’.



Submitted by Alan Spross on Mon, 2008-04-28 18:03

What appears to be incorrect here is the custodian’s allocation of the total 15,288 to rollover contributions. What does your Form 5498 indicate?

Since only a single IRA account with this same custodian was utilized for the two rollovers, they should have shown the second rollover in Box 1 of Form 5498 as a regular contribution and not as a rollover. The Inst for 5498 instruct them to show excess contributions in Box 1, so they apparently did not recognize this as a disallowed rollover and therefore did not report it as an excess contribution. You have now brought this to their attention and they refuse to correct it, so they appear to have training and/or compliance issues to address in their firm.

You also indicated you paid the tax and penalty already, which may present a secondary issue. What penalty did you report, an early withdrawal or a 6% excise tax? Perhaps we should get to the bottom of that before attempting to talk to a supervisor with the custodian. A factor is what you intend to do about your 2008 contribution, since applying the excess to 2008 is another option to correct the excess. If you do that, you still have to pay the 6% on any excess amount…….



Submitted by Stephen DeFilippis on Mon, 2008-04-28 18:05

It was treated as a premature distribution subject to tax + the 10% penalty.



Submitted by Alan Spross on Tue, 2008-04-29 01:10

Good job editing out the actual Account #.

As Denise indicated, you need to locate someone at the custodian who can understand that you must have the 5,008 returned along with any allocated earnings or minus any losses, which is quite possible if the IRA account holds equity investments between Nov and the date they return the funds. Based on what you reported you need to get the correct amount actually distributed to you. What you have here is first a distribution which you have reported and additionally an excess regular contribution to the IRA because the amount was rolled over.

If you filed your 2007 return by 4/15 you have until Oct 15th to have them return the correct amount plus earnings and reflect this on next January’s 1099R as the return of an excess contribution for 2007, not 2008. There is a code to reflect this prior year on the 1099R. If you have earnings on the 5,008 that will also be taxable and subject to the 10% penalty, but if there is a loss the amount on your return is correct other than it lacks an explanatory statement and perhaps the IRS can figure this out without that. Therefore, you have already paid the bulk of what you owe.



Submitted by Stephen DeFilippis on Tue, 2008-04-29 02:58

Thank you all.



Add new comment

Log in or register to post comments