Who should create the 1099?

[fiona1]

401(k) plan for Company X - administered by Fidelity. 1/1 plan year. John is a HCE, terminates on 4/18/08, and rolls his money from his 401(k) to an IRA at Washington Mutual. The total amount of the rollover is $122,000.

On 5/1/08, the ADP test is completed for the 2007 plan year - and it fails. John is due a refund of $1500. It will be taxable in the year of distribution. Fidelity adjusts the 2008 tax record of the distribution to show a rollover of $120,500. They create another 2008 1099 for $1500, to reflect the excess contribution refund.

The plan sponsor notifies John that a portion of his distribution was ineligible to be rolled over. John contacts the Washington Mutual and they refund him $1650 (includes earnings). They create a 1099 for the distribution.

January of 2009 - John receives the two 1099's from Fidelity, and the 1099 from Washington Mutual.

Question A: What should John do? Contact Fidelity to delete the 1099 they created? Keep in mind that the 1099 from Fidelity is for $1500, while the 1099 from Washington Mutual is for $1650.

Question B: Who is to blame for the fact that John has two 1099's for the same distribution? Fidelity or Washington Mutual? Who should be creating the 1099 in this situation?

Question C: Instead of rolling the money into an IRA, say that John rolled it into another qualified plan at his new employer. Does that change anything?

Thanks for any thoughts...

[Jim Chad]

FWIW I think that Washington Mutual should have sent the money back to Fidelity to this Participant's account since they should never have received it in the first place. And then they would have done all of the 1099's and probably done it right. If they had been instructed to do this, I don't know if they would have.

Now I think he should talk to his CPA or his local tax office and see what they say he should do. Personally, I would write a letter with my tax return explaining it. I wonder if a CPA would recommend he claim both 1099's on his 1040, but then reduce his taxable income by the $1,500 on the same 1040.

[Bird]

First thing to check is the codes on the 1099s, especially the one from Washington Mutual. It sounds to me like Fidelity did the right thing (maybe the first time I've said that!). Washington Mutual's should be coded so that $1,500 is not taxable. If not, either he didn't ask for the money properly or they messed up. I don't think it's uncommon for someone in that situation to say "just gimme the money; they tell me I have to take it out" and have a "regular" distribution processed.