jmartin Posted January 24, 2017 Posted January 24, 2017 Distribution department incorrectly processes a rollover as a lump sum. Participant has balance of $8,000. $5,000 went to the rollover company and is being coded as a G on the form 1099. The remaining $3,000 was sent to the IRS as tax withholding. Participant received zero dollars. That 1099 is being coded as a 1. What options does the participant have regarding the $3,000 tax withholding? Can they contact the IRS to explain the situation? Or is their only option to file their taxes and receive most of the $3,000 back as a refund? I am assuming that with the latter route the participant would need reimbursed the 10% penalty (any way to avoid that?) and any part of the $3,000 she doesn't get back.
david rigby Posted January 24, 2017 Posted January 24, 2017 Has the $3,000 really been "sent" to the IRS? Or is it in some account, waiting to be sent? Also, not an answer to your question, but "what the...?" I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.
RatherBeGolfing Posted January 24, 2017 Posted January 24, 2017 38 minutes ago, jmartinmgo said: What options does the participant have regarding the $3,000 tax withholding? Participant already selected the option he/she wanted based on his/her retirement needs and overall tax situation. The service provider screwed up, and now needs to correct it by making sure the participant gets his or her full rollover. Why would the participant have to accept something he/she didn't want because the service provider screwed up? GMK 1
BG5150 Posted January 24, 2017 Posted January 24, 2017 2 hours ago, jmartinmgo said: Distribution department incorrectly processes a rollover as a lump sum. Participant has balance of $8,000. $5,000 went to the rollover company and is being coded as a G on the form 1099. The remaining $3,000 was sent to the IRS as tax withholding. Participant received zero dollars. That 1099 is being coded as a 1. Did the second 1099 say 3,000 taxable, 3,000 withheld? Was this done in 2016 or 2017? QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
jmartin Posted January 24, 2017 Author Posted January 24, 2017 yes the 2nd 1099 says 3,000 taxable and 3,000 withheld. This will be a 2016 1099.
BG5150 Posted January 24, 2017 Posted January 24, 2017 So, the IRS was paid its $3,000. Best resolution I see is that the record keeper sends the participant's IRA $3,000, amends the the two 1099's: one to say $8,000 code G and the other 0.00's all over and code 1. Revise the 1096 to reduce taxes withheld by 3,000. Then let the r/k deal with the IRS about the overpayment of the taxes and how to recoup their money. QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
RatherBeGolfing Posted January 24, 2017 Posted January 24, 2017 Pay the participant $3,000 as a rollover (because that is what the participant should get) Issue a corrected 1099-R to "zero out" the mistaken 1099-R with code 1 Issue a new 1099-R for $3,000 with code G Go through the trouble to get the money back from the IRS
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