Overpayment of Benefits & 1099-R Question

[415 Limit]

We have a terminated participant in a DC plan that received a $2,000 distribution. The funds were transferred directly to an IRA. It turns out that she was overpaid by $500 (so she should only have received $1,500). We wrote the participant a very nice letter which she ignored, so we contacted her broker. The broker confirmed that she isn't going to pay the $500 back so the trustee is going to make the plan whole.

When we issue the 1099-R should we issue one for the full amount ($2,000 with code G, $0.00 taxable) or two 1099-R's: one for $1,500 (code G, $0.00 taxable) and one for $500 (code 1, $500 taxable) since the $500 was not eligible for rollover? Or?

Any input would be greatly appreciated. Thanks!

[ETA Consulting LLC]

When we issue the 1099-R should we issue one for the full amount ($2,000 with code G, $0.00 taxable) or two 1099-R's: one for $1,500 (code G, $0.00 taxable) and one for $500 (code 1, $500 taxable) since the $500 was not eligible for rollover? Or?

Any input would be greatly appreciated. Thanks!

A code of 1 would do nothing to make it appear as ineligible for rollover. Since the plan has to be made whole, "I" would issue a 1099-R for $1500 using the plan's EIN number and issue a 1099 MISC for $500 using the Employer's EIN. After the plan is made whole, there should be a need for only a $1500 1099R.

There "may" be other approaches, but consistency between reporting and taxability should be maintained whenever possible.

Good Luck!

[415 Limit]

I like that approach. Thanks very much for your input!