Ineligible rollover to IRA from 457(b) plan

[Guest TaxedToDeath]

In a prior plan year, a participant in a 457(b) plan sponsored by a tax exempt entity rolled over a distribution to an IRA. The participant received a 1099-R.

The distribution was ineligible for rollover and should have been included in the participant's income when distributed and reported on a W-2.

Does the plan sponsor need to issue an amended 1099-R and W-2? How would it do that when the distribution occurred in a prior year?

[mbozek]

In a prior plan year, a participant in a 457(b) plan sponsored by a tax exempt entity rolled over a distribution to an IRA. The participant received a 1099-R.

The distribution was ineligible for rollover and should have been included in the participant's income when distributed and reported on a W-2.

Does the plan sponsor need to issue an amended 1099-R and W-2? How would it do that when the distribution occurred in a prior year?

The employer needs to file an amended 1099-R showing 0 amount eligible for a rollover and a W-2 for the year of distribution showing the amount distributed from the 457b plan as wages. Employer needs to inform Custodian that the rollover was in error. The employee needs to withdraw the 457 funds including interest from the IRA and file an amended 1040 including the 457 amount distributed and earnings as taxable income and file an 5329 for the 6% excise tax for over contributing to an IRA for each year the funds were in the IRA. Employee needs to consult tax advisor to make sure that the distribution is not taxed twice or whether the staute of limitations (3 or 6 years) would prevent taxation.