Brokerage error

Submitted by Janice Roberts on Thu, 2022-12-08 18:18

Taxpayers Wife passed in 2016. The brokerage put the 401K in a beneficiary IRA instead of a Spousal IRA. He tried to have them fix it earlier this year to no avail. He just received the payout less 20% for taxes. Would he be able to roll the balance over into his own IRA? Is there any recourse? Thank you,



Submitted by Alan - IRA critic on Thu, 2022-12-08 20:17

  • Many spousal beneficiaries choose to keep the account as inherited (either the 401k or inherited IRA), particularly if they are not yet 59.5, but the custodian is not responsible for making the decision about the spousal rollover, the taxpayer must either clearly notify them that they are electing to assume ownership of an inherited IRA or take a distribution and roll it over. 20% withholding suggests that this account may still be in a 401k. Is that the case or was it transferred to an inherited IRA account?
  • If already in an inherited IRA, beneficiary RMDs might have been due. If taxpayer failed to complete any beneficiary RMD since 2017, they automatically default to ownership status and their RMD for that year is then calculated from the Uniform Table. This does not apply if the funds are still in the 401k.
  • As for rolling over the distribution, he can do a 60 day rollover and replace the 20% withheld, but only to the extent that the amount distributed was NOT an RMD.

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