IRA Distribution re-deposited… how to report to the IRS?

Submitted by Patricia Landry on Thu, 2013-03-28 16:13

I am helping my elderly mother with an RMD issue which happened as a result of my father becoming ill and passing away. Could you please advise as to how we should report this to the IRS?

Here’s the scenario…

My parents (both 80+ years old) have IRA’s in two banks – Bank A and Bank B. My father passed away in Nov. of 2011. Six days prior to his passing, he withdrew his RMD from Bank A however he did not inform Bank B of that transaction.

In Feb of 2012, my mother assumed ownership of my father’s IRA and changed the account name to reflect her name.

On May 1, 2012 my mother received a distribution from Bank B for the exact amount that my father withdrew from Bank A in Nov, of 2011. My mother immediately returned the check to Bank B claiming it was a mistake and redeposited it into the IRA.

My mother has now received a 1099R (Dist. Code 4) from Bank B for the amount that was distributed and redeposited in May of 2012. Bank B informed her that she will also be receiving a Form 5498 in May 2013 to ‘wash’ this transaction.

My Question(s): Did the bank handle this properly or should they issue a corrected 1099R? Do we report and pay taxes on the distribution that was redeposited to the IRS in 2012? And finally, will this money be taxed again?

Thank you in advance!



Submitted by Alan - IRA critic on Thu, 2013-03-28 17:28

This sounds very strange. I need you to clarify some things:

  1.  Were A and B both your father’s IRAs, and did his Nov, 2011 distribution satisfy the total RMD for both accounts?
  2.  In Feb, your mother assumed ownership of BOTH A and B? Did she combine them, and if so in what bank?
  3.  How did B know the amount your father distributed 2011? Did your mother authorize ANY distribution in 2012? Note that Code 4 is incorrect after ownership is assumed. This suggests that ownership had not been changed as of May.
  4.  What about your mother’s 2012 RMD? The 2012 distribution would have applied to her 2012 RMD and she cannot roll over an RMD. The solution to all this depends on knowing all these details. 

Submitted by Patricia Landry on Tue, 2013-04-02 23:03

Yes, we certainly agree that this is unusual… and more so for us considering our limited exposure to RMDs to date!To answer your questions…1. Yes, both A and B were my father’s IRAs.  And yes, the Nov 2011 distribution from Bank A satisfied his total RMD for both accounts.2. Yes, in Feb. 2012 my mother assumed ownership of both A and B but did not combine them.  She left them as is, ie. as separate accounts.  Note that she previously also had IRA accounts in Bank A and Bank B… so now she has a total of four IRA accounts – two in Bank A and two in Bank B.3. Bank B explained that the custodian of the IRA ordered them to distribute the required amount from my father’s Bank B IRA in May 2012 because their year end record indicated that my father had died in 2011 and had not taken his RMD for 2011.  (The reality was that he DID… however he passed away before informing Bank B).  How the amount was exact is a mystery.  Part 2 of your queston… no, my mother did not authorize any distributions to automatically occur in 2012.  Regarding the Code 4, we have paperwork that provides evidence that the account was changed at the bank… perhaps the custodian’s records were not changed by then?  Note that the 1099R in question correctly reflects my mother’s name, address and SSN yet has the Code 4.4. And finally about my mother’s 2012 RMDs… yes my mother took her 2012 RMDs.  She did not consider applying that May 2012 distribution to her 2012 RMD (that was unfortunate).We appreciate your advice in helping to untangle this!

Submitted by Alan - IRA critic on Wed, 2013-04-03 00:33

  • If the bank is not the IRA custodian and is acting as some form of intermediary, that goes a long way to explain the communication problems and errors. The custodian and/or bank has no authority to order distributions because an IRA can satisfy their RMD from an IRA and for all the bank knows this could have happened. The distribution showing code 4 is not a problem in itself because a surviving spouse can take a distribution (code 4 death benefit) and roll it over to her own IRA within 60 days. That will eliminate tax, penalty or any double taxation. Since this actually was her own IRA, reporting a rollover is not a problem. However, any distribution received in an RMD year (2012) is automatically deemed to apply to the 2012 RMD for ANY of her 4 owned IRA accounts and RMDs cannot be rolled over.
  • First of all, she needs to verify that all 4 IRA accounts are properly titled in her name as owner and that means your father’s name would no longer be included in the IRA registration. If the investments allow combination, she should consider reducing the number of IRA accounts by combining them by direct transfer (transfers are not reported).
  • With respect to the disallowed rollover if it occured prior to her taking her 2012 RMDs, with these banks trying to correct this in the recommended manner would probably just produce more errors, so I would advise her to just report the rollover on lines 15a and 15b of her 1040 for 2012 leaving her with a taxable distribution equal to her actual 2012 RMD.

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