Correcting IRA transfer errors
It took just one incorrectly coded 1099-R to put me in panic mode. When I received three of them within 6 months, I had to resort to attack mode.
I have shared my angst and my key learnings in this article, [b]Correcting IRA transfer errors: Do’s and Don’ts.[/b]: https://www.adaptu.com/docs/DOC-1312
Permalink Submitted by Alan Spross on Thu, 2011-07-14 02:49
Several good points in your release.
Almost all of these problems originate with banks; brokers and mutual fund companies mostly have competent people handling these transactions. I don’t know if you omitted it or not, but if you do receive a check to be treated as a transfer, it should not read just “FBO you” but “FBO your IRA”. It can then only go into your IRA, not to you personally.
But absolutely, try to get the 1099R corrected at the source and deal with the IRS only as a last resort. Try to get the 1099R rescinded if the transaction should have been a non reportable transfer. You only have one indirect rollover per 12 month period per account and it should not be wasted on what should be a non reportable transfer.
Incidentally, a qualified retirement plan cannot refuse to do a direct rollover, but an IRA custodian has no legal requirement to do a direct transfer. Some banks may charge extra for it, others may issue the check with some payee format that does not qualify for a non reportable transfer. By all means carefully review any paperwork to make sure you are requesting a transfer and NOT a distribution.
You did not indicate whether the one rollover rule was the main issue or whether you just wanted this particular transfer to be non reportable as was your original intent.
Permalink Submitted by Jose Morales on Thu, 2011-07-14 16:26
Transfer/Rollover issues are a huge pet peeve of mine. The level of ignorance seems to be equal at banks, brokerages, trust companies, the OCC, and the sea of CPAs out there in my experience. Before even reading your article I assumed that you had gone to your IRA Custodian and asked for a check made payable to another IRA Custodian “FBO Jane Doe, IRA.” Although I know that technically there is no constructive receipt of the funds when the check is made payable in such a manner and handed to an individual, the overwhelming ignorance when dealing with IRAs by all involved parties makes this a bad idea more often than not.
It was these kinds of errors that made me decide that no withdrawls could be made from IRA accounts without the proper documentation (distribution or transfer request) and could only be processed by IRA specialists at the financial institution I work for. If the client needs the funds ASAP we can overnight the check to them or the new IRA Custodian.
I’ll refrain from making any further comments about the OCC or CPAs in regards to this general issue, as much as I would love to say more.