401K Problem

[Kaliaus]

Respected Income Tax Experts

One my client she is old lady (more than 69 years Old) invested in 401K around 85K. One of her relative by mistake draw 85K from her 401K account. She later on find out and recover the money and redeposited in 401K after 120 days. Do you think it will consider the roll over or not

[Jiggers]

Respected Income Tax Experts

One my client she is old lady (more than 69 years Old) invested in 401K around 85K. One of her relative by mistake draw 85K from her 401K account. She later on find out and recover the money and redeposited in 401K after 120 days. Do you think it will consider the roll over or not

How can someone other than the owner of the 401K make a withdrawal?

[Roberts]

A waiver is almost always allowed if the financial institutions screw up or the financial institution gave bad advice - not if the investor screws up. Does your client's relative have power of attorney?

[Bees Knees]

From TTB, page 13-21

60-day rule waiver. The IRS may waive the 60-day rollover requirement
in cases where failure to meet the 60-day deadline are
beyond the participant’s reasonable control.

Letter Ruling—waiver granted. A 64-year-old taxpayer suffering from
a mental condition authorized a distribution from his IRA through an
online transfer. He did not recall making the transfer and subsequently
failed to properly roll over the distribution. The taxpayer claimed his
mental condition impaired his ability to make sound financial decisions
or understand the consequences of his actions and submitted documentation
including letters from his physician that supported his claim.
The IRS waived the 60-day rollover requirement and gave the taxpayer
60 days from the date of the letter ruling to make a rollover contribution
equal to the initial distribution. (Ltr. Rul. 200904028)

Letter Ruling—waiver denied. A taxpayer under age 59½ took a distribution
of his entire IRA balance intending to roll it over into another
IRA. The taxpayer’s belief that he had 90 days to roll over the distribution
did not fit within any of the guidelines used by the IRS to offer a
favorable ruling. (Ltr. Rul. 200907049)

In your case, a relative took out the 401(k). A relative cannot do that unless the 401(k) participant authorizes the relative through some kind of power of attorney. In my opinion, authorizing a relative to withdraw the money is not beyond the participant’s reasonable control. If I were IRS, I would deny the waiver. But, I’m not IRS. You can pay the fee to get an IRS letter ruling if you think you have a case. If not, the distribution is taxable.

[Kaliaus]

401k

A waiver is almost always allowed if the financial institutions screw up or the financial institution gave bad advice - not if the investor screws up. Does your client's relative have power of attorney?

No power of attorney from client. It is fraudulent act. However I understand that I have to write letter to IRS for 60 days waiver but I do not know what address waiver letter to written

[appelman]

Fraud could be considered screwup by custodian.

The address for a private letter ruling is:

Internal Revenue Service
Attn: CC:PA:LPDRU
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044

But, since the amount is over 50K, your client would have to pay at least the $625 reduced user fee. I would suggest that you first get a POA and talk to the PPL. Maybe it can be shoehorned into an automatic approval category.

[S T]

Rollover - and age 69 by the way is NOT old!

I thought the "rollover time" 401K and/or IRA was 60 days??? Why would the Financial Institution even allow the redeposit after 120 days?

Not sure I understand how "another person" can initiate an action on a 401K or IRA account, without a Power of Attorney on that account

If a fraudulant Act - then the Financial Instituion should also be involved in any penalties, and interest.

Seems like there needs to be more fact finding on this OP scenario?

Sandy

[Bees Knees]

No power of attorney from client. It is fraudulent act.

So the relative is now in jail for committing a felony?

I would think charges filed against the relative (as opposed to this just being a miss-understanding) would have relevance as to whether IRS will waive the 60-day rollover deadline.

There is a difference between a "fraudulent act" as you say now, vs. a "mistake" that you described in your original post.

[JohnH]

Yes, the difference between "fraud" and a "mistake" is like the difference between "lightning" and a "lightning bug".

[Bees Knees]

I find communication on internet message boards interesting. There is always something lost in the translation. Words have meaning, and subtle differences between words chosen can have a significant difference in describing what actually occurred.

One problem with advice on message boards is that facts are often obscured by they way the situation is described in writing. Leaving out important details, or using the wrong words to describe situations can greatly impact the kind of answers you can expect from others.

Don’t give us half truths. If you want the correct answer, then ask the correct question. Keep that in mind before using the advice given on this or any other message board.

[luke]

friday

Or as Joe Friday would've said "Just the facts, maam"!
(I guess that says a lot about my age?) and I agree 69 is NOT OLD haha

[Burke]

It is apparent from the grammar and syntax that English is not the OP's first language. So a little deference here would go a long way. It is not clear that the return has even been filed yet. That needs to be done first, checking the box for waiver of 10% penalty, and wait for the CP2000 if that has not already been done. If that has been done, and correspondence has been received regarding the matter, then a letter to them outlining all the details should be attempted first.