2000 rollover check issued to mutual fund has not been cashed. Participant now wants cash distribution. Okay to to reissue check to participant (less withholding) and correct 2000 1099-R?

[Guest dyoder]

The participant elected to have his $6900 distribution rolled over to Vanguard in 2000. After discovering that the distribution check was never cashed, Vanguard was contacted and indicated that they did not have an account for the participant. The participant has now indicated that he wants a cash distribution instead of a rollover. Under these circumstances, is there any reason that we cannot issue a cash distribution (less income tax withholding) and report the distribution on a 2003 1099-R while correcting the 2000 1099-R which reflected the rollover? Is it necessary to have the plan sponsor sign the new distribution form requesting the cash distribution? This may be a problem in this instance since the company has split up and this plan may no longer be in existence.

[david rigby]

This may be a problem in this instance since the company has split up and this plan may no longer be in existence.

Yep that would be a problem. If the plan is no longer in existence, who would issue a new check (or rollover) or a new 1099?

[Guest dyoder]

The check and 1099R would be issued by the former trustee (a bank) who is the one that just discovered that the check had never been cashed.

[mbozek]

Has any one thought this through? If the participant received a check in 2000 payable to Vanguard for a direct rollover and the check was never cashed then a new check must be made out to Vanguard to complete the transaction. In a direct rollover there is no 60 day deadline for placing the funds in the new IRA.

If the check was issued to the participant and not rolled over within 60 days then the participant had a taxable distribution in 2000 which would have been reported on the tax return.

The real question is whether the participant treated the funds a tax free direct rollover to Vanguard on the 2000 tax return. If a new check is issued to the participant in 2003 then the taxpayer will have to amend the 2000 tax return to eliminate the rollover.

How could the participant make a $6900 rollover and wait 3 years before investigating why no statements were received for Vanguard?