Erroneous contribution from a partner
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Erroneous contribution from a partner Last month we had a partner take a Schwab IRA Distribution and he meant to have it deposited to his checking account, but due to a clerical error on his part, the small $700 distribution went to our Partnership Investment Club account with Schwab. The IRA distribution was a taxable transaction. I told my partner to ask Schwab to reverse the "journal entry" on the Partnership account, but they are telling him that would result in another taxable transaction and to just cut a check from the Investment Club account payable to him to correct the problem. As Treasurer, I think this would be considered a "partial withdrawal" and possibly another taxable transaction for my partner. Does anyone have a solution for this issue? Thanks for your help. Steve Foster Circle of Friends A partial withdrawal wouldn't be a taxable event unless the member's tax basis in the club was less than the $700. However, the easiest thing to do is record the $700 deposit as a transfer from Suspense (you may have to create a suspense account if you don't already have one) to broker. Enter in the comment field that this represents [member name]'s IRA distribution mistakenly deposited in wrong account. Then write him a check for $700 and enter it as a transfer from broker to suspense and explain that the check is returning the erroneous deposit. Ira Smilovitz
The only taxable transaction was the removal of the money from the IRA. It doesn't matter if the money is deposited into a personal checking account, the club's account, or anywhere else, unless it is deposited into another IRA account belonging to the partner within a certain number of days (90 days I believe), in which case the money would be considered a rollover. This obviously didn't happen, so Schwab should be able to redirect the deposit into the correct account if the partner instructs them to do so in writing. If they refuse to redirect the deposit, then you (as Treasurer) can refund the deposit to the partner after the deposit has cleared. The partner can then deposit the refund into an account of the partner's choice or convert it to cash. In this case you would not record the deposit as a member purchase, nor would you record the refund as a partial withdrawal. Simply include a note with both the deposit and the withdrawal that the deposit was made in error. Thank you Ira and William for your welcome knowledge and advice. Steve Foster Circle of Friends
On Wednesday, June 8, 2022, 06:38:16 PM PDT, William Peterson via bivio.com <user*26072600001@bivio.com> wrote:
The only taxable transaction was the removal of the money
from the IRA. It doesn't matter if the money is deposited into a personal checking account, the club's account, or anywhere else, unless it is deposited into another IRA account belonging to the partner within a certain number of days (90 days I believe), in which case the money would be considered a rollover. This obviously didn't happen, so Schwab should be able to redirect the deposit into the correct account if the partner instructs them to do so in writing. If they refuse to redirect the deposit, then you (as Treasurer) can refund the deposit to the partner after the deposit has cleared. The partner can then deposit the refund into an account of the partner's choice or convert it to cash. In this case you would not record the deposit as a member purchase, nor would you record the refund as a partial withdrawal. Simply include a note with both the deposit and the withdrawal that the deposit was made in error. |
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