94 year old client’s IRA
My 94 year old client wanted to move $100k from his traditional IRA at ML to his traditional IRA at MS. He spoke with ML and they understood what he wanted to do, but when he submitted the paperwork, he indicated, in error, “regular distribution” instead of “transfer/rollover”. The funds moved trustee to trustee. The 1099-R issued by ML shows $100k in both box 1 and 2a (as taxable distribution), the “Taxable Amount Not Determined” box is checked and the distribution code is 7. The 5498 issued by MS shows the $100k in box 2 “Rollover Contributions”.
Even though it was not the client’s original intention, it would benefit the client to take the $100k into income for 2021 due to really high medical expenses, but he never took the $$s out of the IRA. Is it possible to just take the $100k into income and create $100k of basis even though the funds still sit in the traditional IRA?
Since the 2021 return is on extension, we have asked MS to move the $100k that they received into a ROTH but they have balked at this stating that we need to provide documentation that the correction can be made retroactive to 2021 since the return is on extension. We definitely don’t want a 1099-R for 2022 indicating a $100k ROTH conversion. Do I understand correctly that this can be done?
Thanks for your help. This is a sticky one!
Permalink Submitted by Alan - IRA critic on Fri, 2022-06-17 16:18
Permalink Submitted by Eileen Roddy on Fri, 2022-06-17 18:47
Okay, so we’ll forget the ROTH conversion idea. ML issued the 1099-R which I think is an error, but they will not correct it because the client indicated a regular distribution on the application, despite the fact that it went trustee to trustee.Any problem with just taking the $100k into income on the 2021 return and creating basis in the IRA?
Permalink Submitted by David Mertz on Fri, 2022-06-17 18:54
Permalink Submitted by Eileen Roddy on Fri, 2022-06-17 19:43
I hope you don’t think I’m arguing with you, as you are an IRA specialist, but if the 1099-R doesn’t indicate that it’s a rollover and the $100k appears in the taxable box and the box is checked Taxable is Not Determined………………how will they know? Why would they question it?The taxpayer did take his RMD in a separate distribution and there were no other rollovers/transfers.
Permalink Submitted by David Mertz on Fri, 2022-06-17 21:25
Permalink Submitted by Eileen Roddy on Sat, 2022-06-18 01:58
Ugh. I understand what you’re saying and can’t thank you enough for your expertise.