1099-R Code G - Check was cashed not rolled over - how do i handle this?

[macuser_22]

What type of retirement account did the distribution come from?

Contact the payer and see if they will issue a corrected 1099-R that reflects what actually happened.

Nobody should have cashed the check that should have been  payable only to the trustee of the account that it was intended to be rolled into.

If they refuse than you will need to enter it as a substitute 1099-R (4852) form coded and box amounts consistent with that type of account with the proper taxable amounts.   What those would be will depend on the type of account and any non-taxable "basis" that you had in the account.

[Sbhill948]

Thanks for the response. It was a 401(k) distribution. Coded as a rollover - check made payable to Capital Bank & Trust FBO/participant. Participant took the check to bank and deposited check to personal checking account. How in the world did this even go through? Series of unfortunate events...

[macuser_22]

The bank should not have cashed that check since it was not payable to the participant.    It's a long shot, but if the bank is the same bank that holds the IRA that the check was intended for, try talking to the bank manager and explain that both the participant and the bank made an error in cashing the check and see it the money can be returned and placed in the IRA where is was intended for to complete the rollover.

As I said, first contact the 401(k) trustee before using a substitute 1099-R.   It is an IRS requirement that an effort must be made to obtain a corrected 1099-R prior to using a substitute.

The substitute would have a code 7 in box 7 if the participant was age 59 1/2 or older, otherwise a code 1.

The amount of distribution in box 1.    Any after-tax contributions that were in the account that were distributed in box 5.   Box 2a the same as box 1 minus any amount in box 5.

The box 2a amount will be taxable plus an additional 10% penalty if under age 59 1/2.

[Sbhill948]

Thanks again for the response. I am doing my parents' tax return and it was my dad who took the check to the local bank and deposited it into the checking account. Completely honest mistake on his part. The company he worked for changed 401(k) companies and the check was from Ascensus (prior 401(k) company) to Capital Bank & Trust fbo/my dad. Coded as a rollover by Ascensus on the 1099-R for obvious reasons. He received the check in the mail and proceeded to deposit it. Shame on the bank - I will be calling Ascensus, Capital Bank & Trust, and the bank on Monday morning. I hope, as you mention, the bank can complete the transaction as it was originally intended. Otherwise, I will attempt to get the 1099-R corrected by Ascensus. Doesn't help that this all happened over a year ago now :(

[dmertz]

Part of the problem is that a properly prepared check for a direct rollover will be explicitly made out to the receiving retirement account, not just to the receiving financial institution for the individual's benefit.  In this case the check should have been made out to Capital Bank & Trust fbo Dad's IRA, even better it if includes the account number of the IRA.  Making it out fbo Dad, makes it permissible to deposit the check into any account fbo Dad.  Failing to reference the receiving account is a common problem with 401(k) plans issuing checks for direct rollovers.  Failing to deposit the check into an IRA causes the transaction to fail to be a direct rollover.

If  funds have remained in the account to which the rollover was deposited and, particularly, if your dad thought that the check was being deposited into an IRA, the rollover can probably be salvaged by applying IRS Revenue Procedure 2016-47 to self-certify that the this transaction would qualify for a waiver of the 60-day rollover deadline based on reason 3.02(2)(a) or (c), allowing the money to be deposited into an IRA as a rollover.  With the money rolled over, the code-G Form 1099-R could then be entered as received.  It would be up to Capital Bank & Trust to accept the self-certification and complete the rollover.

https://www.irs.gov/pub/irs-drop/rp-16-47.pdf

Just a general note:  Branch office employees of banks are often the weak link in the chain when processing IRA transactions.

[fanfare]

"It would be up to Capital Bank & Trust to accept the self-certification and complete the rollover."

It doesn't have to be Capital Bank and Trust, it could be any custodian like Vanguard or TD Ameritrade.

For example if he opens a TD Ameritrade IRA account, use the "60 day rollover" option on the contribution page. 

Custodian is required to accept your "60-Day-Rollover" rollover indication. You have  until July 15 to make it happen.

Your bank account must be linked for ACH transfer.

[fanfare]

additional info added above.

[macuser_22]

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@fanfare wrote:

"It would be up to Capital Bank & Trust to accept the self-certification and complete the rollover."

It doesn't have to be Capital Bank and Trust, it could be any custodian like Vanguard or TD Ameritrade.

For example if he opens a TD Ameritrade IRA account, use the "60 day rollover" option on the contribution page. 

Custodian is required to accept your "60-Day-Rollover" rollover indication. You have  until July 15 to make it happen.

Your bank account must be linked for ACH transfer.

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Read the thread.  This happened a year ago.  The "self certification"is to the financial institution that made the error and has the money in another account, not some other financial institution that was not involved.

Vanguard or TD Ameritrade did not receive the check a year ago and put it in the wrong account, Capital Bank and Trust did only Capital Bank and Trust can fix it.

And the OP no longer even has a check from the 401(k) plan to deposit in any account.

[dmertz]

While the self-certified late rollover under Rev. Proc. 2016-47 doesn't have to be to an IRA at Capital Bank and Trust, convincing another IRA custodian to accept the self-certification would probably be much more difficult since they were not involved in the error.  The original intent was to have the rollover be to an IRA at Capital Bank and Trust, so the assumption is that it is desired that the IRA be at Capital Bank and Trust and, since Capital Bank and Trust contributed to the error, it seems that Capital Bank and Trust would be much more likely to accept the self-certification.