Death Benefit to Non-Spouse Beneficiary

[§#$%!]

In March 2005, a non-spouse beneficiary requested to have a rollover distribution into his IRA. No one caught it so the rollover went through.

I was informed of it now since 1099-Rs are being prepared.

I'm not sure how to correct this. I know I should inform the participant that the distribution was not eligible to be rolled over; it should be withdrawn from the IRA, and it should be taxable income in 2005.

Should we prepare a 1099-R for 2005 disclosing it as a cash distribution? Or, have it withdrawn and let the IRA issue a 1099-R for 2006 disclosing it as a cash distribution? But then, how would it be reported for 2005?

[Guest TAG]

§#$%!.

This stuff happens on occasion.

I would send a 1099-R showing distribution. A non-spouse bene is not subject to the 20% withholding and can opt out with a w4 form so really okay there.

You should then send a letter to the rollover institution informing them that funds are ineligible for rollover, need to be withdrawn, and sent to participant. They will need to correct the 5498 to zero. I would definitely inform the rollover institution that you cut a 1099-R showing taxable distribution for 2005.

Hope this helps.

TAG

In March 2005, a non-spouse beneficiary requested to have a rollover distribution into his IRA. No one caught it so the rollover went through.

I was informed of it now since 1099-Rs are being prepared.

I'm not sure how to correct this. I know I should inform the participant that the distribution was not eligible to be rolled over; it should be withdrawn from the IRA, and it should be taxable income in 2005.

Should we prepare a 1099-R for 2005 disclosing it as a cash distribution? Or, have it withdrawn and let the IRA issue a 1099-R for 2006 disclosing it as a cash distribution? But then, how would it be reported for 2005?

[§#$%!]

What code should we enter for the 2005 1099-R?

[Guest TAG]

Sounds like a 4 to me. See page R10 of 1099-r instructions.

TAG