Pension Rollover Reversal

Submitted by Steven Reichle on Tue, 2023-03-21 16:03

A prospect/client lost her husband 5 years ago and he had a very healthy pension of approximately $1.0 million. She left it with the company, but now has received a check distribution from them of $800k less $200k in taxes. She had no idea that she would receive a distribution check and nothing came in the mail that would indicate that they were going to force her to receive the distribution and withhold the taxes.

The queston is since she has not cashed the check, can this distribution be undone and taken as a lumpsum distribution of $1million rollover to an IRA. if not, what are her options?



Submitted by Alan - IRA critic on Tue, 2023-03-21 16:13

  • Is she sure that the plan did not notify her?  Is she reading all correspondence from the plan? Until this is resolved she should not cash the check in the event the plan is willing to accept return of the check. However, the withholding is a problem because that cannot be made up unless she has another 200k to add to the returned check.
  • How much of this is RMD?  Any RMD amount cannot be rolled over? What age was husband in the year of death?  Has she been receiving RMDs? What date did she receive the check?

Submitted by Steven Reichle on Tue, 2023-03-21 17:24

She indicated that the Plan did not notify her.  She has not cashed the check.  She does not have $200k to add to the check.  He died when he was 55-56 years of age so RMDs were not an issue.  March 14, 2023 is when she received the check.  

Submitted by Alan - IRA critic on Tue, 2023-03-21 18:38

  • The plan was required to send her a Sec 402(f) Notice at least 30 days prior to making the distribution. But since the penalty for failing to send the Notice is only $100, the plan will probably not care.  She or a legal representative should contact the plan immediately and demand that they accept the return of the check and deposit the full 1mm back into the plan and give her at least 45 days to set up an IRA for a direct rollover (no withholding). Even if the plan accepts the return of the check, there is likely no recourse for the 200k withholding, so this approach may only work for the 800k. See the following:
  • Notice 2020-62 (irs.gov)
  • If the plan will not cooperate, she may want to retain legal assistance to force them to accept the 800k check. But if she does not want to incur legal costs or the hassle, only then should she cash the check and roll the amount into an IRA. But is she over 59.5?

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