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Discussion:SIMPLE IRA QUADRO TRANSFER & withdrawall

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Discussion Forum Index --> Basic Tax Questions --> SIMPLE IRA QUADRO TRANSFER & withdrawall


Discussion Forum Index --> Tax Questions --> SIMPLE IRA QUADRO TRANSFER & withdrawall

Martinea (talk|edits) said:

10 March 2014
In divorce decree - 1/2 of all IRA's were transfer to the taxpayer. One of the accounts was a Simple IRA, established more than two years prior to divorce.

T/p decides to withdraw the funds from the newly established Simple IRA - was advised the penalty is 10% plus income tax. On the 1099-R it is coded "S" - Early withdrawal from a Simple IRA - 25% penalty.

Since it was a QUADRO - can the original date of deposit carry over to the receiving taxpayer? Or is the date reset to the date the funds were transferred?

Ckenefick (talk|edits) said:

10 March 2014
I think it's just "QDRO."

Martinea (talk|edits) said:

10 March 2014
Yes that is correct - QDRO - I misspelled withdrawal also.

Kevinh5 (talk|edits) said:

10 March 2014
QDROs don't apply to IRAs. Only to Qualified Plans. SIMPLEs and other IRA flavors are not qualified plans.

Martinea (talk|edits) said:

10 March 2014
I always get my information from client after the fact.

In the divorce decree it states 1/2 of all IRA accounts will be transferred into spouse name. That happened - and they retained their character. The IRA account was split and went into an IRA account. The Simple IRA account was split and sent into a Simple IRA Account. It was a trustee to trustee transfer.

Can the Simple IRA date of original contribution - continue to the spouse's Simple IRA?

Because the trustee of the SIMPLE IRA used the transfer date - there is a 25% penalty. Taxpayer receive a CP2000 for the additional penalty amount.

Help is appreciated - I'm drowning. Thanks

Ckenefick (talk|edits) said:

10 March 2014
I haven't looked this up, but I can...I recall that the "start" date is the first date that a contribution was made to the account. That's how it works with inherited ROTH accounts. The bene gets to tack the original account holder's holding period for purposes of the 5-year rule.

Martinea (talk|edits) said:

10 March 2014
Also found out today - I made ( with the help of my staff) the biggest error in my tax career. The worksheet file of a tax return was efiled instead of the correct information file. The dummy return ( sent by the dummy) got a HUGE refund - when really payments were made. Amended returns are the way.

Ckenefick (talk|edits) said:

10 March 2014
Here's the statute. I think the implication is that we start with the employee/participant's initial participation date. To hold otherwise would mean your client would always be subject to the 25% penalty tax because your client would/could never have an initial participation date. Moreover, your client is just replacing your client's spouse, so to have an added time frame because of the divorce/transfer situation would make little sense.

In the case of any amount received from a simple retirement account (within the meaning of section 408(p) ) during the 2-year period beginning on the date such individual first participated in any qualified salary reduction arrangement maintained by the individual's employer under section 408(p)(2),paragraph (1) shall be applied by substituting “25 percent” for “10 percent”.

Kevinh5 (talk|edits) said:

10 March 2014
The SIMPLE should have been sent to a regular IRA when split, in my opinion (assuming the 2 years from initial contribution has been met). The financial advisor didn't seem to fill out the correct paperwork for her. Contact his E&O if you can't get this straightened out.

Ckenefick (talk|edits) said:

10 March 2014
Also found out today - I made ( with the help of my staff) the biggest error in my tax career. The worksheet file of a tax return was efiled instead of the correct information file. The dummy return ( sent by the dummy) got a HUGE refund - when really payments were made. Amended returns are the way.

I am always very scared that I will do this one day...e-file the "projection" file instead of the real file. So, when I go to e-file, I pull out the actual return and compare the federal and state refunds/balances due, per the cover letter in the file, with what the computer tells me is going via the e-file. They should match, of course.

Ckenefick (talk|edits) said:

10 March 2014
The SIMPLE should have been sent to a regular IRA when split, in my opinion. The financial advisor didn't seem to fill out the correct paperwork for her. Contact his E&O if you can't get this straightened out.

On the one hand, you'd think we'd want to retain the character of the account, only because of the special 25% rule with SIMPLE's. After all, Martin's client might run afoul of the rule after the division. But at the same, as K5 points out, this has caused a coding "error" on the 1099R...or at least an issue...might be that brokerage house is intentionally taking the position that the clock restarts. But I doubt it. I bet brokerage house just looks at the date the first contribution went into the new account - even though it was from a divorce division - and starts the clock there, without giving any thought to the point raised by MartinEA.

I'd see if the brokerage house will re-issue the 1099R. If they will, hold off on filing. If they won't, and if something comes of it with the IRS, try to resolve it through IRS correspondence. And if that doesn't work, then take K5's advice. I think you ought to show some good faith here, however, by trying things diplomatically/administratively first. This will give you the upper hand if it comes down to a suit or mediation. You can state that you made all efforts to mitigate the problem prior to your last resort...

Dennis (talk|edits) said:

11 March 2014
Sec. 408(d)(7).

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