Proper 1099-R reporting for multiple distributions
Here’s a teaser for the super-technical experts (question is coming from a financial institution client)
All events are in calendar 2011
Start year with $100,000 IRA balance.
February 1 complete distribution of $100K account to owner
On 59th day owner rolls back the entire $100K
On July 1st owner again takes complete distribution (assume still $100K)
On 59th day owner rolls $100K back in
On October 1st same series of events starts again followed by rollover back in on 59th day
I think there’s a violation of the “1 rollover within 12 months” rule but my question relates to the proper reporting by the payer institution
Is it correct to issue the 1099-R showing $300,000 of gross distributions (he took the same $100,000 out 3 times)?
And is it correct to issue the 5498 as having received $300,000 of rollover contributions?
Thanks
Permalink Submitted by Alan Spross on Thu, 2012-02-09 22:35
In best case situation, custodian should not accept the second rollover as a rollover contribution sparing the IRA owner considerable taxes and penalties.
However, if the error is discovered after the fact, the Inst for Form 1099R and 5498 indicate that in this situation, two 5498 forms would be required, one showing a rollover contribution of 100k and the other showing Box 1 (regular) IRA contributions of 200k. The single 1099R showing 300k distributed is correct.
At the end of the day, the IRA owner would have line 15a of 300k, line 15b of 100k with “rollover” next to 15b for the first rollover, an explanatory statement for the chain of transactions and a 5329 reporting 6% penalty on excess contributions amounts that will depend on the year end value of all TIRAs. If this is the only TIRA, the 6% will only apply to the balance at year end, which will be either 100k or -0- since owner will have to remove the 100k for the last time since the balance represents the second excess contribution. The end result appears to be loss of IRA balance, taxable amount of 100k and 10% penalty if under 59.5.
Assuming no earnings and no regular contribution eligibility for a 5k or 6k contribution that would allow that much to remain in the IRA as a regular contribution in the end.
NOTE: 1099R must report all 300k distributed for the IRS 1099R and 5498 matching programs to work properly. Only real line of enforcement on the one rollover limit is at the custodian level, same situation as the 60 day time limit. Most of these slip through since no one ever posts how the IRA owner should report this kind of scenario.