IRA rollover from NYC police pension fund
My client retired from NYC Police Dept in Feb 2010. I established an IRA with her 457 monies back in Feb. She has additional money in her banked Variable Supplement fund under the deferred retirement option program (DROP) per IRS code 402(c)(4). The rollover amount is 69,125. She needed to send in her paperwork to her employer by August 31, 2010 If she wanted to rollover the asset. Time expired she did not send in paprework the pension fund just recently on 12/15/2010 EFT money into her checking account in the amount of 55,300 they withheld 20% for federal taxes which amounted to 13,825. She called Pension section they explained to her that they can not reissue a check to her again because time expired. They also stated to her if she has additional monies to make up difference from tax withheld that it would be allowed as long as the rollover occurs within 60 days. They told her the City will issue a 1099R for 69,125 the net will read 55,300. Question can I rollover the full 69,125 if she makes up the difference with additional monies. Also if I can I have 60 days from 12/15/10 is this correct. How does the CPA handle this issue with the IRS if this is allowed. Will my client get credited back the 13,825 dollar for dollar when she does her taxes this year. Thank You
Permalink Submitted by Alan Spross on Mon, 2010-12-20 17:33
Yes, she can complete the rollover within 60 days from receipt of the net funds, but will need to replace the withheld amount to avoid that portion from being taxable and subject to penalty depending on other variables. Assuming she is otherwise adequately withheld, she would receive a tax refund within about 7-10 days of e filing her 2010 return.
This would simply be reported as a distribution and rollover on line 16 of Form 1040.
She could also roll any part of this over to a Roth IRA in a 2010 conversion within 60 days. This would be taxable but she can report half the income in 2011 and half in 2012. Of course, a Roth conversion may or may not be beneficial and that would take some analysis.