"Undo" a Distribution

[Snaggletooth]

A client who had significant other investments with her stockbroker...was issued a 1099-R which wiped out her IRA. She was 58 years old. This was clearly an error (or stupidity) on the part of her investment advisor.

If she gives the money back, can this transaction be "undone?"

[FEDUKE404]

Sounds like income...

A client who had significant other investments with her stockbroker...was issued a 1099-R which wiped out her IRA. She was 58 years old. This was clearly an error (or stupidity) on the part of her investment advisor.

If she gives the money back, can this transaction be "undone?"

Well, her stockbroker could not "issue a 1099-R' without her approving in some shape or form the event which triggered the distribution.

To answer your question, I think there is a window of opportunity (30 days??) to undo an erroneous distribution. That time may have well passed depending on when the event(s) occurred.

If there was truly an "error" then other options may be available to minimize the damage, something along the line of a rollover, but if she "touched the money" those also have time constraints.

Sounds like a mess.........is arbitration a possibility??

FE

[S T]

60 day rule

I believe there is the 60 day rule on IRA distributions for rollover to avoid taxes and possible early withdrawal penalites.

Sandy

[FEDUKE404]

Time issues

I believe there is the 60 day rule on IRA distributions for rollover to avoid taxes and possible early withdrawal penalites.

Sandy

CORRECT - but I was referring to an "OOPS!" situation to repair the damage as opposed to an actual rollover.

Case in point: Client did not want to take RMD during 2009 (the Obama freebie year). He forgot to opt out and in December received such an unwanted distribution. After several phone calls and a certified check sent immediately to Fidelity, the event never occurred.

Sadly, we still have a Form 1099-R with income and cannot get a clear answer as to whether a "corrected" (zero distribution ??) Form 1099-R is in the works or perhaps a second Form 1099-R with one of those infamous Box 7 codes on it.

FE

[Gretel]

Maybe I just had a dream. I vaguely remember that if the investment adviser clearly made a mistake there might be a way out of it. Worthwhile to check out the internet. Below is one of the posts coming up in a search. Good luck, Ron.

"In order to avoid the 10% penalty on a premature withdrawal from an IRA or pension plan, the distribution must be "rolled over" to an IRA or other qualified plan within 60 days. Often a taxpayer will use this 60-day rule to take a short-term loan from an IRA or pension account.

Originally this rule could only be waived if the taxpayer was performing military service or was affected by a Presidential-declared disaster or a terrorist or military action. However, the Economic Growth and Tax Relief Reconciliation Act of 2001 gave the IRS the authority to waive the 60-day rule when failure to do so would be "against equity or good conscience".

IRS Rev. Proc. 2003-16 states that the 60-day rule may be waived in hardship cases and when the taxpayer has made a good faith effort to comply with the rule but did not do so through no fault of his/her own."

[taxmom34]

same thing happened to me

that Fedduke was talking about in his post. i didn't want my RMD for 2009, but bank transfered to my checking account , i went to bank and told them they made error, so they took it back and put back in IRA. then in january i got a 1099R with the amount in box 1 and zero for taxable amount. (i did this within two weeks though.)

[taxdude71]

Get a letter from the advisor explaining the error. Send this in to the IRS along with a correct paper return and that should fix the problem.

I've had this happen a few times over the years. As long as the IRS gets an explination there has never been a p[roblem.

[ChEAr$]

To my good friend, Snaggle;

Since distribution was made last year, and insofar as any 60 day rollover window has
passed (since it's March already), and since nothing was done before the end of the year,
and, insomuch as the "genie is out of the bottle."..........

the french have a phrase for it: "fait accompli". IOW, the deed is done, and taxable for
2009.

I can't see any logical reason to ask IRS to bend the rules, or ignore the rules.

[BOB W]

Broker must be from Ameriprise. They screw up all the time. Had one several years ago and Ameriprise made good for some of the tax issues.

[Edsel]

Thanks to All Respondants

The deed happened a year ago, so with respect to all respondants who offered encouragement with a 60-day window, this is not a possibility.

I'm afraid the ol' buzzard ChEAr$ may be closest to the truth, as the money in her account was actually dispersed and the "foul fowl flown." The only remedy, if it is available, would be for the custodian to issue a corrected 1099-R with zeros. From the standpoint of "fat accomplished" or whatever he calls it, this would be impossible.

But another friend has put his finger on another fact: There is not supposed to be a distribution without the consent of the taxpayer. Here is her story:

1) taxpayer calls broker and says she needs $30,000 for a one-time draw.
2) taxpayer has $100,000 in a conventional brokerage account (not a SEP or IRA).
3) taxpayer has been drawing off conventional brokerage account for years.
4) broker tells her she doesn't have any money left anywhere except an IRA so he
sends her $30,000 from the IRA.
5) end-of-year 1099-R states $30,000 with code "1"
6) taxpayer is only 58 years old and has to pay tax on $30,000 plus a $3000 penalty.

If broker concedes the fact that he made a mistake, or this was an unauthorized withdrawal, and replaces the $30,000 in her IRA account from the conventional account, can the custodian issue a corrected 1099-R?

[Burke]

The deed happened a year ago, so with respect to all respondants who offered encouragement with a 60-day window, this is not a possibility.

Here is her story:

4) broker tells her she doesn't have any money left anywhere except an IRA so he
sends her $30,000 from the IRA.

And she doesn't question this?

[Edsel]

Believe it or not

Nope. She didn't question this. Burke I thought the same thing you did. Fact is, after spending some time with her documents, I've discovered she can't even read them. Absolutely no clue when it comes to numbers. Her talent lies in art and interior decorating.

We are going to sit down with her broker. I have been suspicious that I'm not getting the whole story.