Fidelity 60 Day Rollover Error

Submitted by Reenie Lopez on Wed, 2018-03-28 03:48

Hi,
My husband pulled some funds out of his Fidelity IRA last November. We carefully watched the calendar to make sure we returned the funds back to his account within the 60 days so we did not get hit with the taxes and penalties. We went to our local Fidelity office to transfer the funds from our joint Fidelity account to his IRA within the 60 days, but the Fidelity rep shorted the transfer and told us the net amount (after taxes were withheld) rather than the total amount my husband withdraw. We asked him several times to confirm that we were transferring the correct amount to avoid any taxes and penalties. He assured us he provided us the correct amount – “that they do this all the time.”

After reviewing the 1099-R with our CPA, we went back to Fidelity and after much discussion on how to handle it, they had us fill out a Certification for Late Rollover due to error by financial institution. We thought it was all resolved and were just waiting for the transfer to be made. Today we got an email from Fidelity that they refused the late rollover stating that they did not make an error.

They most certainly did make an error. Their rep provided us with the wrong amount to transfer. Even though he said “that they do this all the time,” he made the error. And now that they won’t correct it, we are furious. Any suggestions on how to proceed? We have what we feel is a very large combined balance at Fidelity and are ready to move all of our funds from them if they do not resolve this to our satisfaction.



Submitted by Alan - IRA critic on Wed, 2018-03-28 04:55

  • I guess I don’t understand why he even questioned Fidelity on how much to transfer back to the IRA. For example, if the original request for the distribution was 10,000 and they sent a check for 9,000 due to withholding, his IRA account statement would show a breakdown of 10,000 gross distribution, 1,000 withholding and the net check for 9,000. When requesting a transfer out of checking, he would just ask them to transfer 10,000 back to the IRA. Why was Fidelity asked anything about the amount to transfer. They should have been asking your husband because it is his choice how much he wants to roll back to the IRA, not Fidelity’s. Of course, he should have declined withholding in the first place if the intent was to roll the entire amount back, so I will guess that he was not aware of automatic IRA withholding of 10%. 
  • So apparently Fidelity is taking the position that their rep did not understand the question or did not pursue clarification of the withholding matter. He could try to get another custodian to accept the late rollover using the Self certification procedure, and they might consider it if the entire IRA was moved there instead of just a couple thousand in withholding. But they are also likely to ask the same questions I just asked. If you have not read Rev Procedure 2016-47, will post a link at the end. You will see that “custodian error” is subjective with respect to how much customer error plays into using that reason for extending the 60 days. Of course, the amount involved here is a major factor in determining how much time and effort you want to put into this. First, read the following, it is fairly brief.
  • https://www.irs.gov/pub/irs-drop/rp-16-47.pdf

 

Submitted by Reenie Lopez on Wed, 2018-03-28 05:17

Thanks for your response. This was the first time we had ever done a 60-day rollover and unfortunately were relying on the Fidelity rep to give us the info from the account at the time of our visit to the office. We were exhausted from having been out of town for two weeks. He made it all seem so simple. I read the PDF link you posted. I had actually seen it online and read it earlier this evening in doing some investigating. At Fidelity, we filled out a form similiar to the letter and checked the box next to Financial Instituion Error. Are you recommend that we draft a letter like this of our own even if Fidelity refuses to do the Late Rollover? Our CPA is asking for a Corrected 1099-R. We won’t get one of those if Fidelity stands by their decision.

Submitted by David Mertz on Wed, 2018-03-28 13:15

  • There is no correction to the Form 1099-R to be made since the original apparently reflects the transaction that actually occurred.
  • I agree with Fidelity’s conclusion that Fidelity did not make an error in the *transactions* that they were ultimately asked by you to make, so does not qualify for self-certification.  I think an actual PLR with a favorable ruling from the IRS would have to be obtained for a waiver based on incorrect *advice* from the rep.  It’s unclear whether the IRS would grant a waiver under these circumstances, but in past PLRs the IRS usually takes into consideration a statement by the financial institution that the financial institution provided inaccurate information to the participant.  Obtaining a PLR may be cost-prohibitive.
  • The effects of this being a distribution could be partially offset by using the money to subsidize future retirement contributions that you would not otherwise make, provided that you are eligible to make contributions in the future.  Otherwise, you could use the money to invest in capital investments on which growth would be taxed at long-term capital-gains rates instead of at ordinary income-tax rates as it would be in a traditional IRA.

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