Felicia Posted February 9, 2012 Posted February 9, 2012 A participant recieves a lump sum payment from a qualified plan and rolls it over to an IRA. Participant is advised that he received too much money. Attorney for the plan notifies the IRA provider of the overpayment and requests its return. Is the IRA provider obligated to return it? Does the provider need the participant's approval to return the overpayment?
QDROphile Posted February 9, 2012 Posted February 9, 2012 No. Yes, unless there is some legal compulsion that is brought to bear. The custodial agreement may have some interesting provisions that could lead to the IRA custodian taking certain actions without participant direction.
K2retire Posted February 9, 2012 Posted February 9, 2012 The money was not eligible for rollover, so it must come out of the IRA. I could see some providers sending it back to the participant instead of back to the plan, however. That would allow them to claim they were not responsible for what happened to the money in case there was any ongoing litigation between the parties.
mbozek Posted February 10, 2012 Posted February 10, 2012 A participant recieves a lump sum payment from a qualified plan and rolls it over to an IRA. Participant is advised that he received too much money. Attorney for the plan notifies the IRA provider of the overpayment and requests its return. Is the IRA provider obligated to return it? Does the provider need the participant's approval to return the overpayment? IRA provider is a custodian who must follow the instructions of the IRA owner who is the owner/fiduciary of the IRA. Plan attorney cannot order the custodian to repay funds to the plan. Custodian will not return any funds to IRA owner without receiving explicit instructions from owner since custodian would be exposed to suit by IRA owner because custodian does not know if plan has the right to recover the funds. Most the plan can do is issue revised 1009-R listing the excess as non rolloverable distribution. I dont see how the plan can sue the custodian to recover property that is legally owned by the participant. Plan must sue the participant who is the owner and fiduciary of the property. How did this mistake occur? Is this a DB plan? mjb
Bird Posted February 13, 2012 Posted February 13, 2012 IRA provider is a custodian who must follow the instructions of the IRA owner who is the owner/fiduciary of the IRA. Plan attorney cannot order the custodian to repay funds to the plan. I agree. And if you do get the participant to agree to tell the custodian to return the funds, be aware that their system will want to issue a 1099-R. (I think) it washes out if the original distributing plan issues a 1099-R indicating it is not eligible for rollover, and the IRA issues a 1099-R for a refund of an excess contribution. Ed Snyder
mbozek Posted February 13, 2012 Posted February 13, 2012 IRA provider is a custodian who must follow the instructions of the IRA owner who is the owner/fiduciary of the IRA. Plan attorney cannot order the custodian to repay funds to the plan. I agree. And if you do get the participant to agree to tell the custodian to return the funds, be aware that their system will want to issue a 1099-R. (I think) it washes out if the original distributing plan issues a 1099-R indicating it is not eligible for rollover, and the IRA issues a 1099-R for a refund of an excess contribution. Question is whether the participant can instruct the custodian to rollover the excess back to the q plan so that it can be deducted on his 1040 to avoid the reporting mess of inconsistent 1099-R reporting. no harm, no foul. mjb
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