When is a distribution a distribution?
Scenario: IRA owner has an ACH distribution from their IRA go out of their account but changes their mind the same day and cancels the instructions and has the funds placed back in their account before it leaves the custodian. The funds never arrive at the IRA owners bank or bank account. Is this considered a distribution? Just to be clear, in this scenario the funds leave the IRA but never leave the custodian. The whole transaction is able to be reversed at the custodian level.
Permalink Submitted by Alan - IRA critic on Mon, 2017-01-30 18:03
The custodian will have to answer this question. It may depend on what point a distribution is reported to their tax Dept for 1099R reporting. If a distribution is reported to the tax Dept, that info would have to be cancelled or it would trigger a 1099R AND a 5498 for receiving a rollover contribution. The IRS will go by the 1099R. If the IRA owner had already used up their one rollover per 12 months, a second rollover is not permitted and a taxable distribution and excess contribution would be created. This owner should discuss the situation with the custodian ASAP after this cancelled distribution since once a 1099R is issued, it will be near impossible to have it voided.