Client Cashed Rollover Check
The client requested a direct rollover check from her prior employer. The check came, made out to her IRA custodian, but she mistakenly deposited the check into her checking account. The bank should not have accepted it but they did. Can the client now make a deposit for the same amount via personal check to her IRA as an indirect rollover? We are within the 60 day limit. Will there be a problem created because the direct rollover check was cashed by the client and not the custodian? Thank you for the advice!
Permalink Submitted by Alan Spross on Tue, 2011-11-29 16:50
I think that many banks are making this error.
In any event, the client can complete an indirect rollover by writing a personal check to her IRA and explaining to the IRA custodian that it is a rollover. The 5498 issued by the IRA custodian should still match the 1099R issued by the plan for the amount, although the 1099R will be coded as a direct rollover that never happened. In the unlikely event the plan notices that the check was never endorsed by the IRA custodian and issues a 1099R without the G code, that should not matter either.
Permalink Submitted by Jose Morales on Tue, 2011-11-29 17:17
Since this type of transaction is reportable regardless of whether it is a direct or indirect rollover, there shouldn’t be any problems.
If this was a non-reportable IRA to IRA Transfer it would be a different story. This scenario is exactly why we only process IRA to IRA transfers if we receive a transfer request from the receiving IRA Custodian and only send the check directly to them.