failed rollover to inherited IRA

Forum|Forum|3 years ago
March 16, 2023
2 replies
4 views

Hello

I accidentally rolled over a inherited 401k into an inherited Ira indirectly. This is strictly forbidden for non-spousal beneficiaries.

I then moved the funds to a different custodian. The IRS said it needs to be removed as an excess contribution to an IRA, but The new custodian said they refuse to code it as a removal of excess contribution because the contribution did not happen there and that it must be processed as a taxable distribution

So I am going to be taxed on the distribution from the 401k. Can I complete a substitute Form 1099-R” (Form 4852) to correct the code from my new custodian so it shows up correctly as a removal of excess contribution to the IRS ?

Thanks

Joe

fanfare

Level 15

if the custodian removes the excess and returns it to you, that should satisfy the IRS.

Put what you did in your Line 4 explanation statement.

@Jboughan4

fanfare

Level 15

not only will a Rollover fail a contribution to an inherited IRA is not allowed either.

@Jboughan4

Opus 17

Level 15

I would think about moving the inherited IRA to a new custodian. The present custodian should not have accepted either a rollover or a contribution if they knew this was an inherited IRA.

Jboughan4Author

Level 2

thats a good point, but the direct rollover is allowed, whereas this was an indirect rollover which is strictly against the rules for non-spouse beneficiaries so they may not have had that level information

Opus 17

Level 15

@Jboughan4

No, if you are a nonspouse beneficiary, you are not allowed to add funds to the inherited IRA by any means, whether by contribution, direct rollover, or indirect rollover.