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Tax confusion with IRA.

I have a problem and I dont know what the correct course of action is. Before I go talk to a tax adviser I figure ill ask on here first.

Basically, my former employer puts to much money into my matched IRA. They put in $1500 more than they should have.

They send me a letter almost a year later after the deposit and almost 8 months after my leaving the company that they made a mistake and demand I return $1500 via a personal check.

I tell them FO im not writing you a personal check for money that I wont see for another 34.5 years. Ill call E-Trade where I rolled the funds to and have them cut you a check for 1500 straight from the IRA.

Turns out, to do that is a huge PITA, I think a process for this doesnt even exist. Suffice to say I think I got to the point where E-Trade will do it, have to call and find out tomorrow if they are processing my request or not.

Today though, I get another 1099 from my former employer. One is made out to the actual IRA amount and has a taxable box of 0 because thats what they assume I rolled over. The second has 1500 in it and has 1500 in taxable.

NOW....

I didnt take a distribution of that $1500, why are they sending me a 1099 saying that I did when the money is in an E-Trade IRA?

Can I just ignore this updated 1099 seeing as how the money is still in my IRA account, or does this 1099 they sent me get filed with the government and they are basically assuming I took the distribution and will come after their taxes?
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Old 03-29-2010, 05:51 PM Lurker is offline  
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Figment
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So did you pay them the 1500 or not? if you did, then you'd have to pay taxes on the money you used, via the 1099. I'm a lil confused, how did they over pay the ira matching? I'm not even sure the business can ask to be paid money back, heck it was a bonus in your eyes. :P I'd still would have told them to FO and just ignore, they prolly wouldnt spend any money trying to get 1500 measly dollars back. (cost them more then it's worth) But that's me.
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Old 03-30-2010, 12:51 AM Figment is offline  
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I have not paid them back the 1500. I have arranged, or I hope that all the phone calls with Etrade has arranged for a check for 1500 to be sent from my IRA back to them. I told them clearly and simply, I am not giving you any money in the form of a personal check period.
However, I did give them three options.
A. Wait 34.5 years ill give it to you then.
B. I give you whatever interest and earnings I think you will make on 1500 bucks over the next 34.5 years, which I equated to something like 50 bucks.
C. Write it off as a loss and forget about it.

But they still want the money.

I dont know how they managed to over deposit the funds too, all I know is, supposedly I am not the only one and I have to pay them back money that isnt mine according to them.

I also didnt think a business can ask for money back, but I doubt that is true. If it was a mistake then I have to return it. Same thing with pay checks. If you are payed for time that you didnt work, officially you have to give it back.

I wanted to tell them to FO numerous times but I really dont need problems over 1500 bucks. Its just not worthwhile enough to have it turn into a bigger headache.
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Old 03-30-2010, 11:31 AM Lurker is offline  
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Roth or Traditional IRA?
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Old 03-30-2010, 11:37 AM Zangmonkey is offline  
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I believe this will be a big pain for you. The first point is that you have to return the money, and no amount of righteous indignation will change that. And you have to pay it now, not in 34.5 years. In fact, the company may be entitled to interest on the $1,500 for the time that you wrongfully had it, which would be at a reasonable rate (not of your choosing).

In the meantime, the amount was an over-contribution to the IRA. I'm pretty sure there something like a 6% annual excise tax on that, for which you'll probably be responsible. Taking the $1,500 out of the IRA is also a withdrawal, but I don't think it counts as an early withdrawal because it rectifies a mistaken over-contribution.

You're going to need to talk to someone qualified to give advice on this sort of thing. And it'll be a pain to fix.
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Old 03-30-2010, 12:22 PM LegalMaven is offline  
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Ya, I have all the same thoughts as LegalMaven, Ive cashed in 20k from an ira, and had to pay 20% or so taxes on it, so I know its a bitch.
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Old 03-30-2010, 05:26 PM Figment is offline  
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Quote:
Originally Posted by LegalMaven View Post
I believe this will be a big pain for you. The first point is that you have to return the money, and no amount of righteous indignation will change that. And you have to pay it now, not in 34.5 years. In fact, the company may be entitled to interest on the $1,500 for the time that you wrongfully had it, which would be at a reasonable rate (not of your choosing).

In the meantime, the amount was an over-contribution to the IRA. I'm pretty sure there something like a 6% annual excise tax on that, for which you'll probably be responsible. Taking the $1,500 out of the IRA is also a withdrawal, but I don't think it counts as an early withdrawal because it rectifies a mistaken over-contribution.

You're going to need to talk to someone qualified to give advice on this sort of thing. And it'll be a pain to fix.

I know I have to return the money and I am doing everything in my power to get the money back to them ASAP. They arent asking for interest, just the 1500.
How can there be a 6% tax on it if I never withdrew the money? It was never in my hands. It stayed in my rolled over IRA account ever since I moved it and now its going back.

Im waiting for them to get the check from Etrade and then I can go forward and ask them what they plan to do with the weird 1099 they sent me.
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Old 03-30-2010, 08:32 PM Lurker is offline  
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The 6% tax is on excess contributions, not excess withdrawals. It's the penalty for violating the contribution limit, which you (or your employer, which is the same) evidently did.
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Old 03-31-2010, 07:19 PM LegalMaven is offline  
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Quote:
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The 6% tax is on excess contributions, not excess withdrawals. It's the penalty for violating the contribution limit, which you (or your employer, which is the same) evidently did.

So wait a minute, I have to eat shit because my employer fucked up?

We didnt violate a contribution "limit". It wasnt more than was allowed in a certain time frame, it was just more than was supposed to be for the amount of money they are matching.
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Old 04-01-2010, 08:45 PM Lurker is offline  
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So wait a minute, I have to eat shit because my employer fucked up?

We didnt violate a contribution "limit". It wasnt more than was allowed in a certain time frame, it was just more than was supposed to be for the amount of money they are matching.

I don't really know how these types of accounts work, since I've never had one. But I thought that the employer contribution was limited to matching what you put in, in which case your employer exceeded it.
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Old 04-03-2010, 03:04 PM LegalMaven is offline  
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