New Info RE: Excessive IRA Distribution

Submitted by Barrie Zultowsky on Wed, 2018-08-15 19:04

Don’t know if you remember or can search for the details of an unintended excessive IRA distribution from the proceeds from the sale of a Fidelity account comprised of BABS. I’ve finally interviewed reps from other custodial companies and plan to move our assets to the Custodian we’ve chosen. I asked him if his company would accept the self certification letter and return the $133K to my trading IRA account. He checked with his Wealth Dept and said his company would rollover the cash but wouldn’t accept the self certification or issue a corrected 1099R, so that leaves me wondering where to go from here. I had filed an extension with the IRS including the additional $31.5K for taxes on the distribution. The new custodial company is saying I should submit the self certification to the IRS? But that still leaves me with an inflated income amount on the original 1099R.

Thanks for whatever direction you can give.



Submitted by Alan - IRA critic on Wed, 2018-08-15 19:46

The receiving custodian issues a 5498 to show receipt of the rollover contribution. This form now contains boxes 13a, b, and c to report the acceptance of a delayed rollover to you and the IRS.  If the custodian will accept the rollover, they must complete those boxes.  You do not send the certification to the IRS, just keep a copy in your files. I would ask this custodian to verify that they will properly complete the 5498. It would not be proper of them to accept the rollover knowing it to be late, and not completing the 5498 properly.



Submitted by David Mertz on Wed, 2018-08-15 20:24

I agree.  If the custodian accepts the rollover knowing it is late, they are implicitly accepting the self-certification and must report on Form 5498 that the rollover was completed under self-certification (amount in box 13a, not box 2, and code SC in box 13c).  Reporting it as a rollover accepted without self-certification (box 2) implies that they believe that the rollover is timely, not late.



Submitted by Barrie Zultowsky on Sat, 2018-08-18 22:31

Gave him all the details of what the new custodian told me.  The tax attorney said they should accept the self certification for their own benefit which I told the rep, and he agreed to accept it on behalf of the new custodian and wants all of my statements from Fidelity going back to 10/2017 when the $133K distribution was done to present.The tax attorney said I didn’t need a corrected 1099R and didn’t mention getting Form 5498 from the new custodian.  He said I could enter income inclusive of the $133K on line 15 of the tax return, but subtract it from the taxable amount on line 15a or b?  I do our tax returns but am not all that familiar with the various lines since the return is prepared using Turbo Tax.I’m sure the IRS will take request for a $31K refund, since I paid that amount as tax owed on the distribution of $133K when I filed the extension on 4/17/18 as a red flag.  Right?  I’ve come this close to erasing my past miscommunication, but should I just accept the error of my ways or potentially have big problems with the IRS?The excessive income also triggered the AMT and Form 990-T.Again I am so grateful for your guidance and hope it will be helpful to others on your blog.



Submitted by Alan - IRA critic on Sat, 2018-08-18 23:47

  • You have come this far and have a reasonable chance to get this late rollover completed and receive a refund of your tax payments made with the extension. So you should get those statement copies to the new custodian with your rollover check (I recall that there was NO withholding taken out) and the self certification form. Do this ASAP since it may take some time and you should not be filing your return until you are sure that the new custodian has accepted your rollover amount as a late rollover.
  • The 5498 as discussed above (lines 13 etc) is important. Have you discussed that issue with the new custodian. They should clarify that they will be completing a 5498 correctly. SInce this is a 2018 5498 it will probably not be issued until May, 2019.
  • Another issue is that acceptance of this late rollover means that it is considered an “outstanding rollover” as of 12/31/2017. This means that your actual IRA balance as reported on your Fidelity 5498 or annual statement of the year end balance in January, 2018 was understated.  Therefore, your 2017 year end balance will have to increased by the amount of this late rollover and your 2018 RMD will increase because of the higher balance.  In other words your current RMD must be based on a year end balance that reflects the rollover of these funds.
  • If you have been filing using Turbo tax in the past and are confident doing so, once the late rollover is accepted by the new custodian, then file your 2017 return reporting the 1099R distribution on line 15a and showing “rollover” next to 15b so that the distribution is NOT included in the 15b taxable amount. This is very easy. But not sure if you plan on having a tax pro file your return.
  • Note that there are no IRS instructions in Rev Procedure 2016-47 that state your tax return must indicate that the rollover was done under self certification. Just file it as if the rollover was done routinely within 60 days.  Again, the 1099R was correct and should not be corrected by Fidelity.
  • I do not think any of this affects the 990 T. UBTI over 1,000 occurs whether there is a distribution or not, so the 990 T is probably correct. The taxes due with the 990 T should have been taken directly out of your IRA account and not included in the 1099R.  They do not count toward your RMD. If Fidelity charges a fee for filing the 990 T, that should also be directly deducted from your IRA.
  • Any questions, please advise.


Submitted by Barrie Zultowsky on Sun, 2018-08-19 16:49

Your advice has been more helpful than the tax attorney whom I probably gave more info from your blog than he gave me, and I will be forever grateful.  This isn’t a case that an SEC attorney wants because there aren’t damages nor is it purely a tax case nor had I found anything on the web that duplicates a case of excessive distribution.  FINRA doesn’t deal with anything that doesn’t blatantly defy an SEC rule, so I was alone trying to ameliorate this situation.The new custodian’s rep didn’t mention Form 5498.  Thanks for bringing it to my attention.  I will see him tomorrow when I will sign the documents to bring all my husband’s and my assets over and hand over all the statements he requested from Fidelity.I thought the AMT and 990-T were triggered by elevated income created by the $133K additional distribution, since the 990-T was recieved withing the last 2 weeks preceded by letters from Fidelity saying it might be forthcoming.  The UBTI  was under $1K net I believe.I will try to do the return myself since I did most of it the weekend of 4/14 and just try to tweak it with the changes you’ve recommended.  Perhaps I will seek a professional review.  Despite your support I am still rather trepidatious.  The 2 self certification excuses that tangentially apply to my case can be blamed on my negligence in not being as scrutinous as I should have been in checking balances of my Fidelity accounts after requesting the transfer of assets from my BABS account.I don’t know where you are, Alan, but I owe you.  I feel so indebted.  If possible I’d have you review or, if you suggested, do my return.  Or represent me if the IRS comes after me. Can you?Sincerest gratitudeBZ



Submitted by Alan - IRA critic on Sun, 2018-08-19 18:21

  1. Sorry, but I do not do direct work. I limit myself to posts on this and other such forums. 
  2. Not sure why the 990 T is being filed if the UBTI is under 1,000.  Perhaps there is another reason for it beside the income within an IRA investment?
  3. However, the AMT will be affected by your taxable income. With the rollover eliminating the 1099R income from your return, it should be reduced or eliminated.


Submitted by Barrie Zultowsky on Mon, 2018-08-20 17:13

Looks like I’ve recieved additional information.  Schedule E shows the name of the investment, which is an LLC and shows income from this investment as $1002 and  a cost basis of $307 on Form 8949.  Schedule D shows a net long term capital loss of $307.  You’re right,  I don’t see an amt. owed on 990-T.



Submitted by Alan - IRA critic on Mon, 2018-08-20 18:36

Sch E and Form 8949 reflect non IRA income, since neither form applies to activity within an IRA account. Therefore, none of this would relate to the IRA self certification rollover except that with taxable income reduced per the rollover, the rate might change on this other income.



Submitted by Barrie Zultowsky on Mon, 2018-08-20 22:18

I was thinking the excessive IRA distribution was the genesis of the 990-T as well as the AMT, since the LLC investment had never generated any of these forms in prior years.  My husband had the LLC investment vehicle in both his traditional IRA and Individual accounts.  I sold the investment that was in his Individual account just before it went under, so we could take the loss.Well, thanks to you and the tax attorney (mostly you) we have just initiated the move to our new custodian who will issue Form 5498 and take the rollover amount from my Individual account and return it to my IRA. He accepted my self certification but was quite apathetic about it.  I checked reasons 1 and 3 – Fidelity’s error and mine.After 4 1/2 months of being stymied at every turn I’d say Mission Ultimately Accomplished.  The answer was in tenacity and finding the right Custodian who would do the rollover and, of course, finding you. Actually I would never have thought to ask the new Custodian to do the rollover.  That piece of this puzzle I must attribute to the tax attorney.Now I must return to the return for 2017 after I affirm the $133K has been returned to my IRA account balance at my new custodian.  And thanks for the info about reporting this transaction on the return which I hope will protect it from screaming out loud scrutiny. Again, I am forever in your debt and eternally grateful.  BZ



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