ira rollover

[Guest Elizabeth Gaskins]

we have a client that had a traditional ira at bank #1. he then wanted to roll it into bank #2 that had a better interest rate. bank #1 made the check payable to him and he deposited it into bank #2 which put it into a regular savings account in his name instead of an ira account. this happened during 2001 and he just now realized the error. any suggestions as to a correction to this error? obviously he doesn't want to take it as taxable income (it's a substantial amount) and both banks refuse to help....

[papogi]

If bank #2 put it into regular account in error, meaning the signed application shows the account should have been designated an IRA, then the bank should make a retroactive correction. If this is the case, I would think that an explanation of this could be included with the client's tax forms to document why the early distribution was not being included as income, and no penalty is being paid. Wouldn't that be easy. I'm sure that your client has already gone to bank #2 about this, and I bet the set up documentation for the account clearly shows the client agreeing to a non-IRA account. If this is the case, I have heard of no exit from this. Without proof that the IRA has been in limbo for less than 60 days, I'm sure no sponsor would be willing to take this account on as an IRA. Pressuring bank #2 is his only hope. Hopefully someone else has heard of a loophole...

[Guest Elizabeth Gaskins]

that's what i was afraid of.

thanks for your input, i really appreciate it.

[John G]

This is reason #134 why you never ever take a check from a custodian but instead to a direct rollover from custodian to custodian. If the check was never in your hands, then you don't have the 60 day clock. Anytime you walk into a bank with a check, you can have problems with how it gets processed.

The tax payer shares in the responsibility for this fiasco. Always check monthly statements for accuracy. And, make sure transactions actually do get posted.

Unless the taxpayer can prove by a letter of instructions or an application that the transaction should have been an IRA and was posted in error, the bank is unlikely to take any action. I would go back to Bank #2 and go up the chain of command. If you are a significant customer, you may at least get the attention of a senior person.