Correcting IRA Transfer Errors: Do’s And Don’ts

 

The IRA transfer process should flow as smooth as molasses. More often than we would expect, it doesn’t.  Consider my experience:  When one of my IRA CDs matured I instructed my bank to issue me a check for the entire amount drawn  on another bank, with my name as “FBO” (“for benefit of”).  In fact, I felt downright smug since I had locked in a better interest rate (and lord knows, in this economic environment even a one point difference is a victory of sorts!).  And I had accomplished this transaction, a trustee-to-trustee transfer, well within the required sixty days window (to avoid the 20% withholding).

This smug feeling evaporated at the end of the year when I got a nasty surprise in the mail.  It was a 1099R form from the bank that had issued me the IRA check.  This 1099 showed that I had taken the funds as a distribution and not a transfer.  Left uncorrected, the IRS would expect a sizable chunk of taxes from me.

Puzzled by the error but confident that the bank would quickly issue a corrected 1099R, I contacted....

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