1099 confusion splitting retirement plan and company stock

Submitted by steve jackson on Mon, 2010-03-29 16:43

Individual left company and rolled over liquidated mutual funds into an IRA. Custodian then sent company stock seperately to a seperate account.The stock is high appreciated so we put it into a Non Qual Brokerage account to get the step up. Did this because we felt it better to pay taxes now(2009 return) on the very low cost basis than later in the IRA. But the prior custodian issued the 1099-R with both funds and stocks as the total distribution(box1) and 0 taxes in(2a). Can we just pay taxes on the stocks cost basis anyway or does the old custodian or new custodian need to issue a new 1099 reflecting the stock is now taxed?Which custodian needs to do this. if at all? Can it be done for tax year 2009 or 2010?

Thanks



Submitted by Alan Spross on Mon, 2010-03-29 19:35

Sounds like the 1099R is incorrect, unless there was some problem completing a lump sum distribution in 2009. There should also be two 1099R forms, one for the direct rollover and the other for the distribution of employer shares.

If the 1099R does not show this, the plan administrator should be contacted for an explanation or corrected 1099R forms. The individual cannot just file a return that does not reflect the 1099R facts. The 1099R needs to be revised if there is an error.

Submitted by steve jackson on Mon, 2010-03-29 23:17

Stocks were sent a few days prior to mutual fund rollover but custodian screwed up and put into IRA account so we reversed and had them sent back to origional custodian who in turn sent stocks back to correct Non Qual Brokerage account. Stocks then went out on same day as rollover but to seperate corrected NQ seperate account. Now both transactions transpired on the same day but went into correct accounts. Seems origional custodian should or could issue seperate 1099’s. Is it to late to contact custodian to get seperate 1099’s. Should we get an extension to wait for one?

TKS

Submitted by Alan Spross on Mon, 2010-03-29 23:33

It is not too late if the custodian clearly messed up. But the issue of an LSD may apply here. They should be contacted to see if the 1099R forms can be revised to show the NUA on one and the direct IRA rollover with a code G on the other. The total distribution box needs to be checked. I think that showing the NUA amount is required whenever employer shares are distributed; special request should not be necessary. But I would also expect that the individual probably asked for a cost basis quote from the plan before making this request.

A taxpayer still has 60 days to roll the stock shares over to an IRA if they change their mind, but it sounds like that 60 day period is long since passed. An extension for the 2009 return is probably a good idea at this point before proceeding further with this matter.

Submitted by steve jackson on Wed, 2010-03-31 19:53

What do you mean by LSD?
TKS

Submitted by Alan Spross on Wed, 2010-03-31 21:43

Lump sum distribution.

You must have a qualified LSD for NUA purposes to get full use of NUA potential. However, if you don’t meet the requirements for the LSD, you can only use NUA that results from employee contributions rather than including the employer matching contributions of the shares.

The elements of a qualified LSD are outlined on p 15 of IRS Pub 575.

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