When I moved from Georgia to Alabama I cashed out my retirement account in order to pay off some medical bills and credit cards. The company (I won’t give the name, but we’ll call them Tango India Alpha Alpha Charlie Romeo Echo Foxtrot for short) transferred about $10,000 too much. I am quite sure of the amount (including my contributions, employer contributions, interest, minus 20% IRS escrow, etc.) that they were supposed to transfer (it fluctuated daily due to interest and stock prices, but I know within $10 or so the amount they were supposed to transfer.)
I notified them immediately. I last spoke to them just over a month ago. They’ve pledged to “look into this” but they’ve never notified me in writing or by e-mail as to what the problem is. Meanwhile I have the biggest bank balance I’ve ever had, but most of it’s not mine. The company seems supremely unconcerned.
What should I do with this money? (I’m not sure the exact amount that’s overage, but it’s around $10,100 near as I can figure.) I’ve considered sending them a check, or putting it into another account, or… and I can guaran-damned-tee you I’m not paying them a penny of interest on the money if/when they ask for it back. (Also, if I keep it long enough does it ever become mine?)
I wouldn’t spend it for a while yet. I would also notify them by some method that gives you proof of notification of your belief that they gave you too much.
The company will want its money back as soon as it catches up with the paperwork and realises that it has paid out too much. Is it far from Alabama to Georgia? Can you visit the company and explain the situation to the HR people? If not, I’d put it aside in another account lest I be tempted to spend any of it and wait for the company to realise its mistake.
You beat me to the suggestion about a separate account. If funds are comingled it is all too easy to borrow some for just a little while in a pinch.
I’m not a lawyer but I think this comes under unjust enrichment. It it really is a mistake the money is not yours and belongs to the other members of the retirement fund and they can reclaim it. There might be some time limit on how long the fund administrators have to take action to reclaim after they know, or should know, that they paid too much.
I would put it in an American Dream account from Emigrant Direct – their big sell is that they offer the highest advertised interest rate on unrestricted transfers. So you’d be getting close to CD rates, but with the freedom to give the money back anytime. Keep the deposit slip so you can give them exactly what is owed (and not a penny more). You stand to make $325 the first year they fail to notice the difference… and then $328.25 the next year (assuming the same rate) and so on.
If it takes them ten years to reclaim the money – not likely, but let’s hope! – you stand to make on the close order of $3,700. That assumes you leave it all working for you as though TIAA/CREF had given it to you in an IRA.
I would advise against unilaterally sending it back until they acknowledge the error and request it. Too many times in large organizations, the right hand doesn’t know what the left hand is doing, and your payment could get cashed without being properly documented or applied to the error in your account. I would wait until they respond to your inquiries so your payment can be sent to the right department and properly documented.
Hi, I work for a retirment plan’s third party administration company. You should write a letter to the company you used to work for, addressing it to the HR department. Also, cc the fund company that paid you out as well as the TPA, if you know who that is. Keep a copy for yourself. Then, either move the money to some fund where you know the value will not decrease because they’re going to come after this eventually. Some plans are only valued one time per year, so it’s possible they will not find this mistake until the 2005 tax forms are due (which could be as late as October 2006).
Make sure the 1099 they send you is correct also. That will come to you as late as January 2006.
Finally, the administator will be so happy that you’ve still got the excess they will not try to ding you for any interest. We’ve had situations in the past where the people have knowingly spent the excess and we’ve had to battle to make them repay the money. :smack: One case, Primary CareNet of Texas v. Scott, a plan erroneously distributed $3,600 too much to a terminated participant. The participant refused to repay the overpayment so the plan sued the participant. The court ordered the participant to repay the excess payment and to reimburse the plan $6,700 in attorney fees.
If you take specific action to cause the money to earn interest, which implies at least a theoretical assumption of risk to the capital, then the interest is unjust enrichment.
The Human Resources Department is not the place to contact. There is a trustee for the fund, who has a defined legal responsibility to oversee the money, and might be interested in hearing about it. (Perhaps even doing something about it.)
That depends on where in Alabama one is located. Assuming “Tango India Alpha Alpha Charlie Romeo Echo Foxtrot” is in or near Atlanta, GA, then the drive could take anywhere from 1 hour to 6 hours one way. Both Georgia and Alabama are pretty big states.
In any case, business of this sort is rarely conducted in person anymore. I vote for a certified letter.
Once the money gets returned, this should be your primary concern. Make sure your communications with them specifically instruct them to correct your 1099R data. Once TIAA-CREF figures out that you’ve been overpaid, their primary concern will be getting the money back, not correcting your 1099R. Make sure you tell every single person you talk with, that this needs to be done.
One other suggestion before you volunteer to send the money back. Check the final account statement that the plan will send. You typically get these every quarter, right? The next one you receive should make it clear how much money was in your account and how much was distributed. You may be able to view your account online as well.
Just to point out that this kind of mistake if often noticed by the accountants at the end of the quarter or the end of the year, when they realize some account isn’t balanced.
It depends on the original cause of the mistake, of course.
The tax rate on that cash out will be something close to 50% (28% Federal, +10% penalty, plus State tax and penalty), so God yes, get the 1099 straightened out.
If you don’t straighten it out tax-wise- Putting it into an interest bearing bank account is silly - sure you might earn $300, but you’d have to pay $5000 in taxes on it.
I want to point that out to the OP- the 20% witholding you say they did isn’t anywhere near enough. You will owe at the very least 38%, plust State taxes.
This shoudl be a warning to everyone- if you “cash out my retirement account in order to pay off some medical bills and credit cards” you’ll lose half of it. It’s not worth it.
The one suggestion I have is to make sure not only that you have notified the payor of the situation, but that you can prove you notified them. Do it in writing, by certified mail if possible. Also, it would be smart to notify everyone involved, as ruokannie suggested (again, in writing). If nothing has happened in six months and you still have the money, send another round of letters.
It’s hard to know what their attitude will be when they figure out that you have $10,000 of their money. They may be grateful and courteous, as they should be; but it’s also possible that someone will be a jerk and accuse you of doing something wrong. If that happens, you want to have a paper trail that shows you’ve been upfront about the situation all along, and any delay is recovering the money is their fault, not yours.
Standard disclaimer: I’m not your lawyer, and this post is not legal advice. If you have a legal problem and need help, you should consult with an attorney in your jurisdiction.
One other thing with regard to the 1099R. I’m sure this goes without saying, but if you do end up giving money back, be sure to keep copies of everything that documents this situation. Be prepared for the possibility that your 1099R will be wrong in January '06. My experiences tell me that there is a strong likelyhood of this happening, regardless of how vigilant you are up front. The people you will be dealing with to get a corrected 1099R will have no knowledge of this situation.
I knew that going in, but since Georgia matches your contributions 2:1, even after taxes I still got out more than I put in, and I was soooooooo tired of the bill collector calls and having no savings that it was worth it to me. I wouldn’t advise it for everyone.
