What to do when institution incorrectly reports 401(k) to IRA rollover as a contribution?

Question

I left a job last fall and rolled over the money from my 401(k) into an IRA I have at my bank, via a check from the 401(k) provider made out to my bank, FBO me. A few weeks ago I got a semi-annual statement for my IRA, listing the rollover amount as a "Current Year Contribution" for 2017. I contacted the bank to fix the issue, and was told that they no longer accept rollovers into this type of account (and didn't at the time I attempted to roll over the funds, something the banker helping me didn't mention), so they can't fix it.

I received a 1099R from the 401(k) provider properly listing the transaction as a rollover (distribution code G), but nothing yet from the bank.

I'm concerned that when I file my return, the IRS will see that a rollover was sent by one institution but not received by another, and this will cause problems for me. I also wanted to make actual 2017 IRA contributions, which is problematic if the rollover amount gets counted towards my limits. What can I do to fix this?

Answer 1

I suspect your only hope of rescuing something from this situation would be to (threaten to) "go legal" against your bank... but this may only be a slim chance.

If the bank no longer accepts rollovers, there's nothing that can be directly done to turn your "contribution" into a rollover. And from what I've picked up here about 401(k)s and IRAs, I suspect trying to extricate the money and rolling-it-over into somewhere else that does allow rollovers is a non-starter (reversing something now seen as a contribution seems difficult, especially if it has earned income since being deposited).

This leaves the slim chance that you can persuade your bank to (partially) recompense you for any penalties that you may be hit with – perhaps as a "goodwill" gesture – depending on what evidence, if any, you can assemble to show that the bank either:

• failed to inform you that a rollover was impossible. E.g. when you say "they no longer accept rollovers [...] something the banker helping me didn't mention", did you make it clear (and can you document) that you "the banker" knew you wanted to make a rollover?

• should have realised you were attempting a rollover and refused to accept the money under such circumstances. E.g., you "received a 1099R from the 401(k) provider properly listing the transaction as a rollover" – can you find out (perhaps from the 401(k)-provider) whether your bank "should have known" (perhaps from accompanying documentation) that it was a rollover?

Answer 2

I am sorry to hear that this happened to you. If the bank has a local branch, you may have better luck in person. If not, I would suggest calling the bank again and immediately request a manager when the first person picks up the phone.