Beneficiary IRA Mistake
A client, without advice, had attempted to do their own IRA stretch and surrendered their parents IRA held at Schwab and cashed the check. Is there any way to fix this problem? Obviously they should have done a trustee to trustee transfer but they didn’t.
I believe I have read that there have been prior unsuccessful attempts to correct this problem via a PLR with the IRS.
Steve
Permalink Submitted by Alan Spross on Tue, 2008-09-02 20:58
Steve,
Unfortuneately, there is no fix for this rather common error. Too bad the current custodian could not have warned the client before issuing the check or that the client did not seek advice on this.
At least they should check to see if there was any after tax basis in the IRA, as that would reduce the taxable amount. In addition, the client could use the distribution to supplement funding of retirement plan contributions and/or IRA contributions, although the added income will increase the chance that the IRA contribution will not be deductible. Client should look to invest the funds in a tax efficient manner now, similar to how they would invest an after tax inheritance.