failed rollover to inherited IRA

[Jboughan4]

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]

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]

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

@Jboughan4 

[Jboughan4]

Thanks for the response. 

The custodian said they would only process it as a taxable distribution on the 1099R.

So,  I can still remove it as a taxable distribution, and explain it on a line 4 ?  Where do I find line 4 to make such explaination? 

[dmertz]

It seems that you will have no choice but to file a substitute Form 1099-R (Form 4852) if the custodian refuses to report the distribution as a return of contribution.  You apparently already have a code-4 Form 1099-R for the distribution from the 401(k) which is taxable, so you don't want to get taxed twice on the same money.  Only any investment gain while the the funds were in the IRA is taxable on the distribution from the IRA.  The Form 4852 will provide a place to add you explanation of the circumstances.

[Opus 17]

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.

[Jboughan4]

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]

@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.