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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10469
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I tried to rollover retirement funds into an IRA. The broker

Customer Question

I tried to rollover retirement funds into an IRA. The broker mistakenly put it in nonqualified account so I had to pay taxes on it. The broker is going to reimburse me for part of the tax bill. I am past the one-year beyond the initial 60 day rollover period so I seem to not be able to roll it over. Is the reimbursement taxable income? Can I put the reimbursement in my IRA?
Submitted: 4 months ago.
Category: Tax
Expert:  Robin D. replied 4 months ago.

Hello, I'm Robin. Welcome to JustAnswer. I'm reviewing your question now and typing up my reply. I'll post that in just a few moments.

Expert:  Robin D. replied 4 months ago.

As you are one year beyond the 60 day rollover requirement it may be too late. The IRS may waive the 60-day rollover requirement in certain situations if you missed the deadline because of circumstances beyond your control.

You qualify for an automatic waiver if all of the following apply:

  • The financial institution receives the funds on your behalf before the end of the 60-day rollover period.
    You followed all of the procedures set by the financial institution for depositing the funds into an IRA or other eligible retirement plan within the 60-day rollover period (including giving instructions to deposit the funds into a plan or IRA).
  • The funds are not deposited into a plan or IRA within the 60-day rollover period solely because of an error on the part of the financial institution.
  • The funds are deposited into a plan or IRA within 1 year from the beginning of the 60-day rollover period.
  • It would have been a valid rollover if the financial institution had deposited the funds as instructed

The reimbursement is taxable to you and you cannot put the reimbursement into an IRA unless you have earned income that would allow you to make a contribution to an IRA.

Expert:  Lane replied 4 months ago.

Hi. I am a different expert with a different answer.

...

IRS liberalized this relief just this month ( Although they still reserve the right to make a judgment on what's "practicable") the time line is now no longer fixed at one year.

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In the new Revenue Procedure 2016-47, the IRS has announced a new and greatly expanded process to receive relief and the ability to fix a botched IRA rollover.

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There are now 11 different reasons specified in the new guidance – from a natural disaster to an illness or death in the family to an error of the financial institution – the individual can now complete a late rollover contribution as soon as practicable, and simply provide the financial institution a “self-certification” that the rollover was permissible based on one (or more, it's a check all that apply letter) of the specified reasons.

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Note that BOTH of the following can be checked

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___ An error was committed by the financial institution making the distribution or receiving the contribution.

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___ The distribution was deposited into and remained in an account that I mistakenly thought was a retirement plan or IRA.

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So, not so sure that this applies, but if you did, indeed, think that the funds were IN an IRA AND the broker screwed up AND you're just now realizing it, this likely applies to you

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I'll attach the for letter that IRA provides. Note that this is to be given to the financial institution not IRS AND that the financial institution is now being provided with a new 5498 that allows for this kind of contribution.

Expert:  Lane replied 4 months ago.

Pardon the typo ... the letter that [IRS] provides