Outstanding Distribution Checks

[Guest Cheri_Rose]

Does anyone have any ideas regarding uncashed distribution checks (i.e. what to do with them?).

I'm not talking about uncashed deminimus distribution checks (lumpsums under $1k), rather checks that have been issued due to participant direction, and not cashed.

Currently, our service provider does not put a 'void-after-date on checks, so theoretically, a participant can hang on to his check for x-years, and then cash it. Meanwhile, the money is "out" there somewhere (gaining interest? that's another question!).

We've been advised by our provider than we cannot roll the outstanding money into IRAs (either Roth or pre-tax) because the participant has already provided direction.

Any ideas of what we can do with these monies?

[SMB]

Cheri,

Most checks, I think, become "stale dated" after one year and (if the teller is "observant" enough) cannot be cashed.

What about writing the recipient and indicate that if the distribution is not cashed by "x" date (e.g., 90-180 days after issued) that a "stop payment" will be placed on the check and, typically, he/she will need to go through the entire distribution request process again.

Unfortunately, that doesn't address the issue of the mandatory withholding that should have already been been deposited...

(If the recipient didn't need the "cash", why didn't he/she do a direct rollover? )

[Guest Pensions in Paradise]

You need to implement a procedure whereby uncashed checks are voided after x days and reinstate the participant's account. Whats happening now is that the money is sitting in the providers general account and they are earning interest on that money which they will keep for themselve. Which is probably why they aren't rushing out and voiding all these checks!!

[Guest mjb]

What are checks issued pursuant to participant direction? Are these checks payable to the particpant or to the IRA custodian. If the latter there is no taxation of the participant regarless of when the chekc is deposited. If the former then the check has been revceived by the participant in the year issued and there is no opportunity for rollover. If check is not void then participant can cash it.

Taxation will be governed by 1099-R issued in the year of distribution. Cashing the check in a later year does not affect the date of taxation if the check was payable to the participant, not the IRA custodian.

[Locust]

The Plan should write a letter to the participant requesting the participant to cash the check. It's possible the check has been lost.

[Appleby]

Unfortunately, that doesn't address the issue of the mandatory withholding that should have already been been deposited...

(If the recipient didn't need the "cash", why didn't he/she do a direct rollover? )

Since the amounts are under $200, there shoudn't be a withholding issue- right?

How about treating the amounts as abandoned property?

[WDIK]

Since the amounts are under $200

Is this fact in evidence?

[Guest Cheri_Rose]

No, the $200 rule is N/A here because I'm not talking about deminimus distributions. I'm referring to distributions issued per participant request (i.e. the ppt called our vendor and requested a lumpsum or rollover). This is only an issue because our vendor doesn't post void-after-dates on their checks, and so no procedure was ever set up.

I like the idea of reaching out to ppts & letting them know that if they don't cash their checks by x-date, we're going to place a stop payment and deposit the funds back into the ppts' accounts.

Roth availability & after-tax sources makes this a lot easier especially for ppts who requested lumpsums and we w/held the mandatory taxes already. I would prefer using Roth sources, but not too sure yet if that will get messy w/ the 5-year distrib rules.

Anything I'm missing?

[BG5150]

What is going to happen to the 1099's that were issued? Especially if the monies are put back into the account.

[Guest Cheri_Rose]

We're thinking nothing. The monies will be put back in the account as after-tax if lumpsum was elected, and rollover if rollover was elected.

No adjustment to the 1099 would be made, since there is mandatory w/holding on lumpsum distribs >$200.