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.
Permalink Submitted by David Mertz on Wed, 2019-06-26 20:30
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.)
Permalink Submitted by Alan - IRA critic on Wed, 2019-06-26 20:41
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.