TSP Rollover Error Not Caused by Client | Ed Slott and Company, LLC

TSP Rollover Error Not Caused by Client

Client looking to do a trustee-to-trustee rollover to IRA and Roth IRA at TDA, completed Form TSP-70 and sent to custodian (TDA), which then completed its portion of the form and sent directly to TSP--inadvertently omitting one of the pages! TSP considers the page (4) to be voluntary so it processed the Roth IRA transfer fine, but ASSUMED, since pg. 4 was missing, that the $500k+ pre-tax rollover was a full distribution...sent client a check for $400k and the IRS a 20% w/h for $100k. Client contacted TSP with the above information, was told the review process was 3-5 weeks. Three HOURS later, called TSP to ask another question and was told the case was already rejected! [They also said they'd already sent the withholding to the IRS, a claim I'm a little dubious about.]

We have appealed the rejection, and included a timeline, the original form, a letter of indemnity from TDA, letters of apology from TDA acknowledging its error and other supporting information.

Beyond that, any suggestions on what could/should be done here? We have considered involving one or more Members of Congress for additional oversight, but have not done so yet.

Any thoughts/suggestions/input would be quite welcome. Fifteen years and I've never quite seen a case like this one.

Complete a 60-day indirect rollover of the $500k.  Unfortunately, the $100k withheld for taxes will need to be replaced using other funds, tying up the $100k until the $100k can be recovered as part of the client's 2019 tax refund.  If some portion of the $100k cannot be rolled over within 60 days due to unavailability of funds, the portion not rolled over will remain distributed, subject to tax and potential early-distribution penalty.  (Withholding from other sources of income, if any, can be reduced to effectively gradually recover some of the $100k withheld, reducing the amount of the eventual tax refund.)

Of course, client could do a 60 day rollover, but I assume he does not have the 100k available to make it a complete rollover. Unless the TDA is willing to loan client 100k to complete the rollover or can broker a solution with the TSP) the client will need to roll over the 400k and roll over the rest after getting a refund for 2019 next spring. TDA should certainly agree under the circumstances to accept the last 100k then using Rev Proc 2016-47 (reason custodian error) to extend the 60 day deadline. Client will have to complete the self certification Form included in the Appendix to the Rev Procedure.

 

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