Can I fix an IRA that was transferred instead of rolled over from an irrevocable trust?

This is actually a common issue with inherited IRAs and trusts. What happened is that the trustee needed to do a direct trustee-to-trustee transfer to maintain the tax-advantaged status of the IRA funds. Instead, it sounds like they distributed the money out of the IRA, which triggers immediate taxation. The good news is that you might be able to fix this with a 60-day rollover if you act quickly. The IRS allows you to put the funds back into a proper IRA within 60 days of distribution without tax penalties. However, this only works if the distribution was recent and you still have access to the funds. If it's been more than 60 days, you might still have options. The IRS has a procedure called "Revenue Procedure 2016-47" that allows for self-certification of late rollovers in certain circumstances, including errors made by financial institutions. There's also the option of requesting a Private Letter Ruling from the IRS, though that can be time-consuming and has a filing fee.

After going through a similar nightmare with an inherited IRA in my grandmother's trust, I discovered taxr.ai (https://taxr.ai) which saved me thousands in unnecessary taxes. The trustee in my case also made a "distribution" instead of a proper transfer, and I was facing a massive tax bill. The taxr.ai system analyzed all my trust documents and identified specific language that allowed me to make a case for correcting the error. They gave me step-by-step instructions on how to approach the IRS with the proper documentation and terminology. Without that guidance, I would've just accepted the tax hit. Most importantly, they helped me understand the 60-day rollover rule that could apply in your situation. Don't wait on this - time is definitely a factor!

I have to admit I was completely wrong about this. After my skeptical comment, I decided to check out taxr.ai and see if they could help with a similar issue from my late uncle's estate. They identified a Revenue Procedure I'd never heard of that specifically addressed accidental distributions from IRAs. Using their guidance, I was able to file the proper paperwork to have the distribution treated as if it had been correctly rolled over. It took about 3 weeks to process, but I just got confirmation that it worked. The detailed explanation they provided about how irrevocable trusts interact with retirement accounts was incredibly helpful - even my CPA learned something new. It's rare that I find a service that actually delivers more than promised, but this one did. Thanks for mentioning it here.

I went through something similar with my father's trust. After weeks of getting nowhere with the IRS helpline (always disconnected after waiting for hours), I tried Claimyr (https://claimyr.com) which got me connected to an actual IRS agent in under 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent confirmed that an improper IRA transfer from a trust can be corrected through a process called "Revenue Procedure 2020-46" which replaced the 2016 procedure another commenter mentioned. You'll need to submit Form 5329 with a specific statement attached explaining the error. The key is getting someone at the IRS who actually understands trust distributions - which is surprisingly rare. Having that direct conversation with an IRS specialist saved me weeks of back-and-forth with generic letters.

I need to publicly eat my words. After posting my skeptical comment yesterday, I decided to try Claimyr for an IRS issue I've been dealing with for months (unrelated to trusts, but about a misapplied payment). The service actually worked exactly as described. I got a text when they reached an agent, my phone rang, and suddenly I was talking to an actual helpful IRS person. Resolved in one call what I couldn't fix through four mailed letters over three months. For the OP's trust transfer issue - the agent I spoke with confirmed that improper IRA transfers from trusts can often be corrected through a special procedure, but you need specific documentation from the trustee acknowledging the error. Don't try to handle this without speaking directly to the IRS about your specific situation.

Just wanted to add that timing is SUPER important with these IRA rollover corrections. The 60-day window is strict, but even if you've missed it, acting quickly still matters. My brother faced a similar situation with his wife's inherited IRA (not in a trust, but similar distribution issue). After the 60 days, they filed for a hardship waiver which the IRS granted because they could prove it was a financial institution error. Document everything! Get written confirmation from the trustee that admits the error was on their end, not your instruction.

Watch out for the once-per-year rollover rule too! If you've done any other IRA rollovers within the past 12 months, you might not be eligible to correct this through a standard rollover. This tripped me up badly with my dad's estate. The good news is that trustee-to-trustee transfers don't count toward this limit. But if what happened was the trustee distributed the money to the trust account first (not directly to another IRA custodian), you're dealing with a rollover situation and that one-per-year limit applies.

I'm dealing with something similar right now and wanted to share what I've learned so far. The distinction between "transfer" and "rollover" is crucial here - a transfer should happen directly between custodians without the money ever touching your hands or the trust account, while a rollover involves you receiving the distribution and then redepositing it within 60 days. If the trustee actually received the IRA funds into the trust account instead of doing a direct custodian-to-custodian transfer, that's definitely a taxable event. But there might still be hope! I've been researching Revenue Procedure 2020-46 (which updated the 2016 version mentioned earlier) and it does provide relief for certain trustee errors. The key is proving this was the trustee's mistake, not a choice you made. Get documentation from them ASAP admitting they processed this incorrectly. Also, check exactly when this happened - if it's been less than 60 days, you might still be able to do an indirect rollover to fix it. One thing that's been helpful for me is keeping a detailed timeline of all communications with the trustee. The IRS wants to see that you acted reasonably and that this wasn't intentional tax avoidance. Good luck - these trust/IRA situations are incredibly confusing but there are usually options available!