Custodian transferred funds from IRA to NQ account
Client had $500k in a T-IRA equities account. Broker recommended moving funds to a bond account. Client agreed. With no disclosure to client, Broker transferred the funds to a NQ bond account. Transfer occurred around 5 months ago. Client is retired.
Client is now aware that the distribution was made, T-IRA account to NQ account within the same brokerage. (no check to beneficiary was issued).
Client was not aware that the new account would be NQ and would not have approved if this was brought to his attention.
My understanding is there is no way to undo the tax consequences.
Does anyone have insight if there is a way to appeal this to the IRS on the basis of the error of incorrectly titling the account was the responsibility of the broker?
Permalink Submitted by Alan - IRA critic on Wed, 2016-11-16 21:01
First, pressure the broker to correct the error. No tax forms have been issued yet. Broker would need to restore the funds back to the IRA and confirm that there will be no 1099R issued or agree that client qualifies for the self certification reason (c) (client thought that transfer was being made into a qualified retirement account). If not done and client has documentation of the discussion perhaps legal proceedings could be considered. Or client could apply to the IRS for a PLR to extend the rollover deadline for reasonable cause. PLR filing fee is 10k plus legal costs and may take several months. Client needs to get on this ASAP since broker will be more likely to respond now before the 1099R goes out in January.
Permalink Submitted by David Mertz on Wed, 2016-11-16 22:22
Regarding self-certification, see Rev. Proc. 2016-47: https://www.irs.gov/pub/irs-drop/rp-16-47.pdf
Permalink Submitted by Alan - IRA critic on Thu, 2016-11-17 00:43
In accepting the self certification, if the broker has information that you knew about the distribution several months ago, they might resist. They are supposed to report on Form 5498 if a rollover contribution was accepted after the 60 day deadline. While taxes are by far the main issue here, you could also get stuck with surrender charges on the annuity. In that respect, perhaps the annuity could be transferred into an IRA without surrender, but those types of transfers are often difficult to get done. May depend on how much business this broker provides for the insurance company underwriting the annuity. Read the Rev Procedure carefully so you understand all the aspects of self certification as that may help you negotiate this with the broker. Given all the recent attention to annuity sales and the DOL fiduciary rule, the broker should be listening to your position carefully.