employee rolled 401k into their simple ira before simple IRA was funded for 2 years

Submitted by Jon Steffen on Wed, 2020-12-09 22:56

How do you undo a 401k rollover to a simple IRA if the simple IRA wasn’t funded for 2 years prior to the rollover?



Submitted by Alan - IRA critic on Thu, 2020-12-10 01:58

  • Why did the SIMPLE custodian accept this rollover?  They know about the 2 year waiting period.
  • IRS Regs allowed a rollover from an IRA into a SIMPLE IRA to be recharacterized back to the IRA, however when the Path Act of 2015 authorized rollovers after 2 years, there was no companion provision to allow a disallowed rollover (due to failure to meet the 2 year period) to be recharacterized in any fashion.
  • Therefore, this distribution was not eligible for rollover and must be treated as a taxable distribution from the 401k, and an excess amount rolled to the SIMPLE IRA. If the SIMPLE IRA issues a corrective distribution of the excess plus earnings and 60 days has not yet expired from the 401k distribution, it can then be rolled into a traditional IRA. If the 60 days has passed, it might be possible to utilize Rev Proc 2020-46 to extend the 60 day deadline to allow time to complete the correct rollover.
  • EPCRS does not seem to clearly indicate what type of operational failure (significant or insignificant) this is, and the type will dictate the correction method. SCP is not available for a SIMPLE IRA significant operational failure.

Submitted by Jon Steffen on Thu, 2020-12-17 22:57

  • Why did the SIMPLE custodian accept this rollover?  They know about the 2 year waiting period.  

 No idea why TD Ameritrade accepted the funds so they’re putting them into an IRA and making some kind of “Accounting Error Correction Journal Transfer” to fix this.  Hopefully no issues with the IRS on this.

Submitted by Alan - IRA critic on Thu, 2020-12-17 23:04

It all depends on what TDA reports to the IRS.

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