How does the IRS look at a (very late) 60 day Rollover? Do people do that??

Submitted by Monica Restuccia on Thu, 2016-04-28 15:47

I was not informed that I had 120 days; plus 60 more if needed (because I was a 1st time home buyer); to roll my money back into the brokerage account I was in. So, when I realized I had missed the 60 day mark, I resigned to having to pay the taxes on that withdrawal. Now I get to my taxes and find out I owe (way too much). The Brokerage firm will not call it an error on their part, but did say I can send it back in and have it marked as a 60 day rollover..

How smart is that? Is this really possible?

Please help me out here, I am really stressed over all this.

I honesty do have a mental health issue, and I just cannot believe there are no exceptions. Also form 5329 asks where and how much of that withdrawal went where; and I can’t honestly say it went anywhere, because it didn’t. It is still sitting in a bank account, doing nothing..

Blessings!



Submitted by Bruce Steiner on Thu, 2016-04-28 16:38

The IRS has discretion to waive the 60-day deadline “where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the control of such individual.”  I’ve obtained waivers in about a half dozen cases.  Your health may be a favorable factor.  The broker’s refusal to say they led you astray may be an unfavorable factor.  Your withdrawing the money to buy a home (if that’s the case) may also be an unfavorable factor.

Submitted by Monica Restuccia on Thu, 2016-04-28 18:21

Hi B. Steiner!  Thank you for responding.  I would need help at this point to do anything correctly.  As you mentioned that you have obtained waivers in about a helf dozen cases..  I would also need help.  I’m just very tired, I’ve been dealing with this since the taxes were due :-(Blessings! Monica 

Submitted by Alan - IRA critic on Thu, 2016-04-28 16:46

  • For a qualified first home purchase that falls through, the roll back period is 120 days instead of 60. The 60 does not get added to the 120. Basically, 60 days is added to the normal 60 days for a total of 120 days. What the brokerage firm is apparently offering is a major opportunity for you since this offer indicates an admission on their part that they erred in not informing you. This provision is unknown to many IRA custodians and those in the real estate industry, and it is not clear that they have the legal responsibility to inform everyone of the 120 days. But if they specifically told you that you only had 60 days, that was erroneous advice and their error.
  • I would jump on this opportunity ASAP and get that check out to the IRA custodian. But there is additional requirements that the custodian must meet in order for you to eliminate IRS problems with the rollover. They must issue a Form 5498 for 2015 reporting the rollover contribution. These forms are issued in May for the prior year, and both you and the IRS get a copy. That way, when you report a rollover on line 15 of Form 1040 on your tax return, the IRS will have the 5498 to match up to what you reported. You do not file the 5498, but you should keep all 5498 forms you receive for many years. It is helpful that the May deadline for them to issue the 5498 has not yet passed, so get that check issued ASAP. You should also confirm with them that the 5498 will show this rollover contribution to your IRA. Technically, if they do any coding this should be coded as a 120 day rollover. This is critical if you did any other rollovers in the 12 month period before this distribution or after it. because you are only allowed one such 60 day rollover in total. But a 120 day rollover is NOT subject to the one rollover limit as it has a special exception. If they say there is no coding option for the 120 day rollover, that is OK, but please advise if you rolled over any other distributions after March 2014.
  • This will eliminate the need to deal with the IRS directly over this. However, if I recall correctly you did not file your return on time or file an extension. So you will still face IRS penalties for failing to file or pay what was actually due on time. Fortunately, this should reduce your amount due substantially.

Submitted by Monica Restuccia on Thu, 2016-04-28 18:03

Hi Alan!  There has been (no admission or an error) coming from that Brokerage firm.  I was told I could send that money in, as stated; but they are not admitting anything or getting involved.  That is how the call ended and if that person was being sincere; why didn’t they take me up on the offer for my to make a direct deposit.  I was told to mail it in and mark it as 60 day rollover.  Honestly.. I am so burnt out by all of this I really don’t know what’s what.  Even my friends are noticing how hard this is on me and I’m running out of energy with it.Blessings!  

Submitted by Alan - IRA critic on Thu, 2016-04-28 18:41

You are in a gray area between the custodian correcting bad advice they gave you that discouraged you from doing a 120 day rollover, and tax fraud. To determine the difference, I would need to know the date you took the distribution, the date your purchase fell apart, and the nature of your contact with the custodian after the purchase fell apart. What did you ask them and what did they say? DId you document any of this? Did the person you just talked to understand that you want to roll back a distribution taken a year ago and why you think they should accept it? Do you think they recorded your calls last year and recently? At the end of the day, the custodian is not going to admit any guilt so you will have to decide if they really misled you last year of just failed to tell you that you had 120 days. They would not know why you took the distribution unless you clearly told them.

Submitted by Monica Restuccia on Fri, 2016-04-29 15:27

Hi Alan,  I found out that the person I spoke to (that refused to hear me out and review any further calls) is a (15) Year Employee of the Brokerage firm and her title is Broker/Dealer!!  Now I know why when I call for (someone else) to be able to help me; they keep referring back to the fact that I’ve already spoken to (such n such)!  Sounds pretty sneaky to me and the ONLY thing they say they can do, is give me a P.O. Box address and send my complaint in writing.  * I also did some research and found out that same person, has (3) “Disclosures” a/k/a Negative Actions, on file already.  When I called the Boston office this morning to have someone listen to yesterdays recorded call, Re: what we think is tax fraud; but I did not say so to them.  I was told there is “Nothing more” they can do for me, and the person Refused my request to listen to the call from yesterday and help me understand what it was suggesting.  That is how I referred to it.  Also, at the end of the call, I asked the person’s (location), as I already had written down his name; and guess what??  My call had been transferred from Boston, MA to the same location in Kentucky where the “Broker/Dealer” works..  Nice ha?  My gut say’s (forget them all and just pay the taxes and I hope to God I can use Form 5329 to at least have the Early Withdrawal fee Waived!  What do you think Alan?  I want to wrap this up today.  Thank you!  Monica 

Submitted by Alan - IRA critic on Fri, 2016-04-29 20:48

With respect to the disability penalty waiver, your disability must meet the definition under Sec 72(m)(7) copied here:

72(m)(7) MEANING OF DISABLED. –For purposes of this section, an individual shall be considered to be disabled if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration. An individual shall not be considered to be disabled unless he furnishes proof of the existence thereof in such form and manner as the Secretary may require.

If you have an MD who would be willing to give you a letter indicating that your condition met this definition in March 2015, you could claim the exception to the penalty by filing Form 5329 and showing exception code 03 on line 2. If you are collecting SSDI you could claim the exception without the letter, but would be on more solid ground to have the letter as well because SSDI uses a slightly different definition than the quote above.

Submitted by Monica Restuccia on Thu, 2016-04-28 19:28

Hi Alan!  The fact that the custodian said that the Firm did not make an error; tells me that they are not going to get involved in any help I may need down the road with that rollover advice or “anything”  Also, Yes, such a LATE rollover sounds like fraud to me and I’m not willing to take that persons suggestion!  I was talking to a friend after I hung up from that custodian and I told her (after he gave me that crazy rollover advice) I bet he deleted that call.  Because ALL calls are recorded.  This is a HUGE firm, not a small operation and I am very surprised.Maybe I should contact SSDI and ask if they can help me, since it seems I’ve been taken advantage of or something and I cannot afford to be paying all these taxes “Because of Bad Advice”  What do you think about that?  Ps. I certainly know not to call the IRS for help; and I hate that I never filed an extension.  I want to pay my (fair share) Before they contact me (and think I was trying not to pay)..  It’s a mess alright.  I also can’t believe that the 48K is going to be added to the $15K (disability) amount and put me in a much larger tax bracket.  I also was not told that!!  When I withheld paying taxes on distribution; my responce was “I’ll wait until I have a house and “write-offs”  Another thing I see on the 1099-R is, in “box” 7 they put in a (1) and I found out that just means early withdrawal..  Nothing to do with First Time Home buyer!!  Fail, fail, fail; is what they did.  I was so consumed with that house, I never looked at this until tax season this year.  Ps. I appreciate your time and input here :)- Blessings!

Submitted by David Mertz on Thu, 2016-04-28 20:31

 

Submitted by Alan - IRA critic on Thu, 2016-04-28 20:54

Agree. The discussion between the OP and the custodian’s rep may not have included full disclosure from either party. It is not possible to determine what was assumed in that discussion. Generally, the custodian should not be offering to make retroactive changes such as accepting this late rollover contribution unless the miscommunication is totally the fault of the custodian (100% custodian negiglence). Unprofessional customer service does not justify making retroactive changes, whereas direct and material and incorrect statements made by the custodian to the client may. In most cases like this, the custodian will not admit to an error, but in knowingly accepting a retroactive rollover it is not clear whether that constitutes an admission of responsibility or is due to poorly trained staff.

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