Non-spousal inherited IRA
Hi-
My father passed away this year and I inherited his TSP account. I had a lot going on and I missed my chance to do a direct rollover and they sent me a check. I read on this website that a non-spousal beneficiary cannot do a 60-day rollover. However, before I read that I was working with the knowledge that this was allowed. I took the check that was made out to me and signed it over to the brokerage account. They took it and set up an inherited IRA account for me. Was this wrong? Do I have to unwind this? If I do have to unwind that what do I need to be aware of? I was working on getting the 20% that was withheld added to the account as well.
Thanks in advance
Permalink Submitted by Alan - IRA critic on Mon, 2023-06-26 19:14
Distributions to a non spouse beneficiary are never eligible for rollover. You could have done a direct rollover to an inherited IRA by the TSP imposed deadline, but that chance evaporated. The TSP will issue a 1099R in January and the distribution will be taxable, but no penalty since you are a beneficiary. As for the brokerage, they were not thinking clearly, since they saw the distribution check, it was obviously payable to you, and you are not a surviving spouse. If the deposit was made, it must be treated as an excess regular IRA contribution and distributed back out of the inherited IRA. Do NOT just ask for a distribution, it must be a corrective return of excess and coded as such on the 1099R you will also receive in January. As such, only any gains since the contribution would be taxable in Box 2a of that 1099R. Again, this is an odd error for a broker to make, as opposed to a bank custodian. Be sure you talk to someone there that fully understands the problem and correctly codes the distribution.