Why Your Retirement Account Paperwork Needs To Be Done Right

Too many people don’t take their IRA and 401(k) paperwork seriously enough



Too many people don’t take their IRA and 401(k) paperwork seriously enough, and that leads to terrible consequences. Here are two recent cases that will surprise and shock a lot of people.

The first case involves an IRA owner who failed to notify the custodian that he moved. At least, the IRA owner’s new address didn’t make it to the custodian.

Most people know they can change IRA custodians when they want. What few people know is an IRA custodian can decide to stop being custodian of an account. Under conditions specified in the IRA documents that few people read, a custodian can close an IRA without any action by the IRA owner.

The most common provision says the IRA custodian can resign and close the account 30 days after notifying the IRA owner of the intention. That gives the IRA owner time to roll over the IRA to a new custodian. Typically, if the custodian doesn’t hear from the IRA owner within 30 days after the notice is sent, the account is closed.

A custodian closes an IRA by distributing the account balance, usually in the form of a check, and mailing it with a letter of explanation to the last known address of the IRA owner. The custodian also will send a Form 1099-R to both the IRS and the owner, listing the account balance as a distribution. The IRA owner will have to include that amount in gross income for the year, unless he or she is able to roll it over to a qualified retirement account within 60 days of the distribution.

In the recent case, the IRA owner moved, and the custodian didn’t receive notice of his new address. After some time passed, the custodian sent a letter to the owner at the last address on record. The letter said the custodian was resigning from the account, probably because there was a lack of activity in the IRA and lack of contact with the owner.

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Source: Forbes

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