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Author: jrr7 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75383  
Subject: 403b Company Screwup Date: 3/29/2005 11:44 AM
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My mom's broker convinced her to rollover her 403b to his company. I wasn't in favor of this but didn't have any time to advise her on what she should do instead.

The company screwed up -- the rollover took place on the day dividends were due to be paid. They transferred the funds over to the new broker, and then paid the dividend. Only problem is the account didn't exist any more. So they sent the dividend check to my mom, which she cashed. They sent her a 1099 reporting the dividends as income.

In my understanding, though, this is an unqualified withdrawal from the retirement plan, and she also owes a 10% penalty. Is that correct?

Is there any way this can be corrected? Whose responsibility is it to correct it?
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Author: dusty2004 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 45315 of 75383
Subject: Re: 403b Company Screwup Date: 3/29/2005 12:16 PM
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jrr:

You may get more answers if you post this to the Tax Strategies board but here is my take.

In my understanding, though, this is an unqualified withdrawal from the retirement plan, and she also owes a 10% penalty. Is that correct?

Yes if she is under 59 1/2. The money was distributed from a qualified retirement plan and would be taxed and penalized.

Is there any way this can be corrected? Whose responsibility is it to correct it?

The only way this can be corrected is if it is withing the 60 day rollover period (which I expect it is not if she already received the 1099R). The responsibility is with the taxpayer. Since she received the check and knowingly cashed the check she accepted the distribution. Unfortunately ignorance of the law is not excuse.

Again, I recommend posting this to the Tax Strategies board. More knowledable individual than me there.

Dusty

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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 45316 of 75383
Subject: Re: 403b Company Screwup Date: 3/29/2005 12:17 PM
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I presume your brokers account is an IRA. In most cases she has 60 days after the check was issued to deposit the funds in the IRA account.

At the end of the year, when she files income taxes for '05, the 1099 will be listed and she will be asked if she rolled over the funds. If not, then the taxes and penalty are calculated and payable. Technically if taxes are due, she is supposed to file estimated taxes at the end of the quarter in which the transaction occurred (next is Apr 15). So you might want to estimate what taxes might be due and compare that with her refund last year. If the taxes are larger than last years refund, then estimated tax (or increased payroll deductions) are in order. If the potential tax liability is smaller then your last refund, you should be covered.

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