Is there a way to reverse a lump sum distribution?
A friend recently inherited a retirement plan from her mother. She received several pages to complete and she elected to have the lump sum distributed. She deposited it into a bank account and then received a 1099 for this tax filing year. In working though is issue, she realized she had made several errors, the first was requesting a lump sum, the second not depositing it into an IRA account. She is well past the 60 window to return the distribution.
So my question is, is there a way to reverse this? Obviously, she would prefer not to pay taxes on this distribution and put it into an IRA. We spoke with the company who distributed the check and they could not help because it was past 60 days. Could she make a plea to the IRS and ask for “forgiveness”. Maybe even state the circumstances and say she had made the error not being in the proper mindset?
What step could be taken if any? Thanks for you help in advance.
Permalink Submitted by Alan - IRA critic on Sat, 2016-02-27 17:55
Unfortunately, this error cannot be fixed. There have only been a couple cases that involved extreme negligence where the IRS has allowed a retroactive transfer of the funds. The 60 day rollover is not even an issue for a non spouse beneficiary because these funds are not eligible for rollover in the first place, so it is not clear why the company even mentioned it. Requesting a private letter ruling from the IRS is very expensive (roughly 16k including legal expense) and in this case it would be a waste of money. The administration has recommended changing the law to allow rollovers of non spouse beneficiary distributions, but even if that ever comes to pass it is unlikely to apply retroactively.