Excess contribution to an IRA
There is an excess rollover contribution to an IRA. The DB plan that the rollover came from mistakenly distributed to much. All of the money in the IRA is used to buy an annuity so there is no way to return the excess contribution. What are the options in a case like this?
Permalink Submitted by Alan Spross on Fri, 2012-12-07 22:08
Did the taxpayer provide documentation of the error in the amount of the rollover and the insuror still refused to issue a corrective distribution?
Permalink Submitted by Stephen Aponte on Sat, 2012-12-08 14:27
I guess I should clarify. I suppose the money could be returned but they are looking for a way to do it without disturbing the annuity contract. I think they are probably out of luck but I was hoping there was some other idea. Thanks.
Permalink Submitted by Alan Spross on Sat, 2012-12-08 17:04
If he gets a letter from the plan explaining the reason for the requested return of funds, he should provide that to the insuror. An excess IRA contribution must be issued from the IRA that received the rollover calculated incorrectly by the plan. This situation is addressed in Pub 590 on p 48, “Excess due to incorrect rollover information”. Taxpayer would then have to amend the 1040 for the year of the rollover and explain this to the IRS.
But the fact that the insuror must return those funds and the distribution of them from the annuity is not taxable does not mean that they cannot charge surrender fees. You would hope that they would cooperate knowing that this situation was totally beyond the taxpayer’s control. It would be a larger headache if this was an immediate annuity already in payment.