Restoring withholding to IRA account

noticed your other questions involve estates-is this in regards to estate or personal return??

in one of your other posts you also mention calculating RMD-not sure how that is all fitting into this either

taxguy-your 2 posts were not here (visible) when I answered.

yea-its really weird--theres three posts for the question-and they kept moving around as well-but that's okay you guys generally explain things better than i do--probably the biggest benefit of being on this site for me at least

TG - I'm a little concerned that Susan couldn't see your posts.  That blindness of yours isn't catchy is it?

Unfortunately, the client missed the 60 day window because of a lack of cooperation from her first bank.  The IRS is now sitting with 10% of her corpus plus the normal withholding on her RMDs.  It sounds like there is no way to put this 10% back into her IRA when it is refunded.

This also brings up some additional problems in the forms 1099R and 8608.  If one marks the RMD box just before line 8 on the 1099R worksheet and inserts the RMD amount, that is the amount carried over into line 7, form 8606  rather than the gross distribution.  Doesn't this understatement  of the total distribution result in erroneous results in the subseqent lines of form 8606. 

Here's a concrete example:  Bank #1 1099R gross distribution $6572, Bank #2 gross distribution $1363.  Line 15a, form 1040 $7935.  RMD $1363 from each bank.  Withholding  Bank #1 $5344, Bank #2 $1363.  Line 7 form 8606 calculated by Pro Series,  $2726 (i.e. 2 x RMD or 2 x $1363).  Thus all the subsequent lines on form 8606 are based on $2726 rather than on the total distributioi of $7935.  Ceteris paribus, client should be able to recover the excess withholding of $5209  ($7935 - $2726 = $5209) but apparently will not be able to redeposit it to her IRA account.  This mean she lost a small amount of interest while the IRS was holding the $5209 and she lost the ability to tax shelter this amount going forward.

When a person opens an IRA account the banking institution doesn't ask, has no reason to ask, is not required to ask where the funds come from or what the employment status is of the individual.

Presumably the client pulled out of the IRA because they wanted the funds put elsewhere.  The best way (too late now) is a trustee-to-trustee transfer.  The individual never sees the funds.  If the bank writes a check, or puts the funds into client's checking account or non-IRA account then it's a distribution and is reported as such on a 1099 and tax is withheld. If that happens client has 60 days to put the funds into a new IRA account.  Any amount not rolled over including withheld tax becomes a taxable distribution.

Once the 60 days are up you're pretty much out of luck although there are some exceptions and you can look them up in the rollover section of Pub 590.

Seems really strange a bank would say they can't open an IRA. Just walk in, tell them you want to open up an IRA, and here's the money to be rolled over.  Then you try to argue with IRS that the money pulled out of the first bank should have been a rollover and not a distribution.  But if you don't get that money into another IRA account  PDQ you certainly can't argue later it was not distributed if you're still holding it.