Direct Transfer from Qualified Plan to IRA in Error

[Guest andyr]

A transfer from a qualified plan to an IRA resulted in a penalty for an annuity held in the qualified plan because it was cashed in prior to the transfer, but one day too soon. Now, the annuity company is willing to take back the original amount, waive the penalty and re-transfer the funds to the IRA.

Question: Do the above transactions require the issuance of 1099R's back and forth or could the original transfer be deemed a mistake? Are there any adverse tax consequences for the QP/IRA owner?

[QDROphile]

There is no such thing as a transfer from a qualified plan to an IRA. You probably mean a direct rollover. That means that the plan distributed amounts to the participant. You need to come up with a legitimate reason for reversing the distribution, such as the plan allows the participant to designate the distribution date and the administrator disregarded the instruction and distributed prematurely. You might allow the IRA to roll over the amount to the plan if the plan terms allow the rollover. If the distribution was based on termination of employment, the plan probably does not allow a former employee to roll amounts over to the plan. I don't think you can reverse the transactions simply because a better economic result is possible.

[Guest andyr]

Yes, you're correct----a direct rollover is what I am referring to. Thanks for your response.