2021 rollover from nonqualified plan to traditional IRA

Forum|Forum|4 years ago
February 8, 2022
7 replies
34 views

I mistakenly rolled over a death benefit from a variable annuity to my traditional IRA. (No mechanisms to prevent that apparently.) I also have an inherited IRA and in December I took (more than) the RMD for 2021, as a function of my mother's age at the time of her death last year. Is there any way for me to avoid double taxation on the ineligible rollover? Anything I can do with that inherited IRA that would help here given that there's still over two months left before April 18?

Otherwise, my reading of IRS publications suggests I need to do a Corrective Distribution (distribution code 😎 from the Traditional IRA for tax year 2022 which will cause double taxation of the rolled over amount. The variable annuity benefit came with its own 1099-R with income to be reported on my 2021 return and with distribution code 4D, thus preventing rollover of that amount.

Not A Product Question

dmertz

Level 15

Depositing this money into the IRA is an excess contribution to the extent that you cannot treat it as a regular traditional IRA contribution. To eliminate the excess contribution and avoid the 6% excess-contribution penalty you must request that the IRA custodian make a return of contribution before the due date of your tax return, including extensions (not a regular distribution).

There will be no double taxation. The only part of the distribution from the traditional IRA that would be taxable and potentially subject to early-distribution penalty are any gains attributable to the returned amount which are required to accompany the returned amount.

ira_queryAuthor

Level 3

Thanks very much for your reply. My IRA custodian is a large bank which no longer offers new IRA products in the bank part of the organization. Perhaps the people in that department are not familiar with the "request for return of contribution" form. All they could come up with was another distribution. Is this a formal letter I need to submit perhaps referencing some IRS regulation or code? Thanks again.

dmertz

Level 15

Any IRA custodian should have a form to request a return of contribution from a traditional IRA. Have the local branch rep contact their IRA department for instruction.