Would this trigger an audit?
L1: Would this trigger an audit?Hello, and thanks for the wonderful site! I started a 72T from my Schwab IRA 3 years ago, everything going fine. By the way this is my onlyIRA.Then this year, seems my former employer made a contribution to my 401K of 72 bucks AFTER I did my rollover to my IRA. They wanted to close the account, so sent me a letter with choices of what to do with this money. I didn’t have a separate IRA to roll it into, so I took the distribution in cash. I will therefore pay a penalty on this. Will the IRS see this penalty and then look closely at my 72 T from the other IRA from a different company and question it? Guess I am paranoid, but I am trying to stay ( legally of course) under the radar.2011-05-13 02:08, By: JanetM, IP: [126.96.36.199]
L2: Would this trigger an audit?No problem, and you made a wise decision to take the cash distribution and avoid busting your plan with a disallowed contribution to the IRA.
It seems odd that this 401k contribution occurred 3 years after you completed the rollover, but it does not matter because your 401k distribution was from a plan that is not linked in any way to your IRA account. It is not even reported on the same line on your Form 1040, and the 1099R that you will receive for the $72 will not even have the IRA boxed checked. Therefore, there is no reason for the IRS to relate it to your 72t plan in any way.2011-05-13 02:58, By: Alan S., IP: [188.8.131.52]
L3: Would this trigger an audit?Whew! Thanks , I needed to hear that. Actually the contribution occurred 3 years ago, and I was unaware because I didn’t have paper statements or email notification either. My advice is for everyone who rolls over a 401K to check back in some way on it for a few months just in case.2011-05-13 03:07, By: JanetM, IP: [184.108.40.206]
L4: Would this trigger an audit?Janet:
I agree with Alan that you don’t have anything to worry about, and thank you for bringing this situation to our attention. My guess is this is the situation we have warned folks about forever where late dividends, capital gains and maybe like in this situation late contributions by the company can cause problems for SEPP Plans.
Janet, if you processed a “trustee-to-trustee” transfer of your K-plan to the new IRA, then the K-plan custodian would have the name andaddress of the newIRA custodian as well as theIRA account number. Normally when an old K-plan has these transfer orders in place, any new funds of any type that are credited to the old K-plan will follow the path of the original transfer and move into the new IRA account automatically. I’m at a loss as to why this didn’t happen in your case and you should consider yourself very lucky! I’m also curious as to why you didn’t receive either paper nor e-mail notification of the status of your old K-plan account. The custodian is required to atleast send an annual statement toany participant who has any money in a plan. If you could contact the old plan custodian and inquire why they didn’t atleast provide the annual statement of your account for the past three years it would be very helpful.
Alan, in the past we have suggested using two IRA accounts for these transfers … one to receive the K-plan transfers and a second, funded from the first IRA account, to designate as the SEPP Plan account to prevent unexpected transfers in like the one that could have occurred in Janet’s case. Maybe we should add a new warning to cancel any electronic notification by the K-plan custodian when an employee leaves so the participant will receive paper statements by “snail-mail” to better insure they do receive the statements.
Jim F2011-05-13 14:16, By: Jim F, IP: [220.127.116.11]
L5: Would this trigger an audit?Jim, after I recieved the letter from my401K custodian giving me the options for the handling of the money, they said the default was to send methe money. Having known that I did the trustee to trustee transfer earlier, I didn’t want to take a chance on another automatic rollover. The deadline for replying to them was 2 months away, but I called them right away, got the paperwork filled out to do an immediate cash out, so they wouldn’t get the chance to screw it up later. Everything might have been fine otherwise, but how would I know till too late. As far as why they didn’t tell me about this $72 for 3 years…I need to find out. I read every word on this site over several years and studied all the posts before plunging myself into this 72T plan. I guess my fear of the IRS forced me to do this. Good thing, or I might have really screwed up and rolled this $72 into my IRA. I am so grateful for this site, as itallowed me to retire at age 50.
2011-05-13 15:23, By: JanetM, IP: [18.104.22.168]
L6: Would this trigger an audit?Janet:
You did great workcontrolling your financial life in this matter! I only wish more folks would do the homework like you and ask questions BEFORE taking the plunge. We get too many queries about “how do I fix my screw up” when a simple question or a little more research would have saved their bacon in the long-run.
I’ll be anxiously waiting to learn the results of your query as to why the custodian didn’t provide atleast an annual statement for your account over the past three (3) years.
Have a nice weekend.
Since this is Friday the 13th, I’m celebrating the University of Alabama Crimson Tide Football team’s having wontheir 13th National Championship Title in 2009!
“ROLL TIDE ROLL”
Jim F2011-05-13 16:52, By: Jim F, IP: [22.214.171.124]