Botched inherited IRA transfer

Submitted by Rick Herndon on Fri, 2023-03-17 13:07

My client made an error in filling out the form for directing the custodian as to what to do with an IRA she inherited. She had them send her a check in her name which she later deposited in an Inherited IRA account established at a different custodian. The new custodian accepted the check and so the money has been in that InherIted IRA account for 5 months.

She received 1099 forms from her mothers custodian showing the code 4, death benefit.

Is there any way to remedy the situation and have the distribution treated as a transfer to an Inherited IRA, which was the intent.



Submitted by David Mertz on Fri, 2023-03-17 13:54

  • There is no remedy, particularly since there was no error on the part of the original IRA custodian.  The different custodian should not have accepted the deposit and it now constitutes and excess contribution.
  • Congress has discussed legislation to change the tax code to allow such a distribution and rollover, but no change to the tax code has become law.

Submitted by Bruce Steiner on Sat, 2023-04-08 21:06

  • It was the Obama administration that proposed this change.  I’m not aware of any discussion of it in Congress.  I was suprised that it wasn’t enacted since it’s not partisan and the revenue involved would be small.
  • Bruce Steiner

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