How to deal with $10 Roth IRA check

[RenoJay]

About five years ago I opened a Roth IRA at LendingClub, a peer to peer lending platform. I made lots of small loans to people ranging in term from 3 years to 5 years. At the end of 2018, the last of the loans were maturing. I decided to stop doing P2P lending and to xfer the Roth to Vanguard.

But apparently there was a small amount of money (about $10) left at LendingClub. Since my account with them was closed, I received a check yesterday.

I don’t know what to do with the check. I’m afraid if I cash it I’ll have inadvertently withdrawn from a Roth IRA before the proper age and may expose myself to some penalty years down the road.

Any advice on what to do with this check to avoid negative unintended consequences years later?

 

[ziggy29]

If you get a 1099-R for 2019 saying this was an early distribution and you have no qualifying exception, the penalty is $1 (10%).

Probably easiest to just see if that happens, and if so, declare it and pay a one dollar penalty when you file next year. That would be the end of it.

Alternatively, [-]if the Roth is more than 5 years old[/-], you can treat this as a withdrawal of *contributions*, and there would be no penalty. [edit -- not exactly. You can withdraw *contributions* any time.]

 

[njhowie]

Just endorse and give the check to Vanguard to add in to your Roth. Be sure that they mark that it is a rollover contribution (generally a checkbox on the contribution form). Call Vanguard to ask how the check needs to be endorsed and get the form off the website.

 

[Spock]

Wells Fargo did this when I closed an IRA. They didn't include the partial month interest in the rollover, so they just dumped the change into my checking. In branch Wells Fargo "bankers" are just tellers that regularly showed up to work on time and got promoted. I end up always having to deal with their "tele-bankers" to get it done right.

 

[ziggy29]

Wells Fargo did this when I closed an IRA. They didn't include the partial month interest in the rollover, so they just dumped the change into my checking. In branch Wells Fargo "bankers" are just tellers that regularly showed up to work on time and got promoted. I end up always having to deal with their "tele-bankers" to get it done right.

Yeah, I think the old custodians just want to wash their hands of it in the most expeditious way possible (for them). The hassle here is that the original custodian just sent out a check in the account holder's name and they never asked *how* they wanted this sent out. If OP could get the check made out to "Vanguard FBO RenoJay's real name", then yeah, easy-peasy, mail it to Vanguard, no 1099s would go out. I guess if the amount is small enough, or the account holder requested closure of the account, they just cash out the peanuts that trickle in at the end.

That said, in *this* case, I think the path of least resistance and hassle is to just pay the $1 penalty and be done with it. Though I can understand that some folks would be motivated to do differently.

Note also that if the amount was slightly less than $10, OP may not even get a 1099 for it -- but it still needs to be reported as income unless they want to pursue the angle of signing it over to Vanguard.

 

[joylesshusband]

Alternatively, if the Roth is more than 5 years old, you can treat this as a withdrawal of *contributions*, and there would be no penalty.

Bolding above mine.
And the bolded statement is incorrect.

As long as your lifetime total Roth contributions amount to at least $10, then there is no penalty nor tax - this is purely a contribution withdrawal.

 

[ziggy29]

Bolding above mine.
And the bolded statement is incorrect.

Not incorrect per se, since you *can* do exactly what I said, but the five years is not a necessary condition. You can, of course, withdraw the *contributions* any time.

Actually I got two different withdrawal rules confused.

Anyway, I've updated the original statement.

 

[gauss]

May need to report the withdrawal of Roth contributions on Form 8606 - 2nd page to do this properly.

 

[njhowie]

May need to report the withdrawal of Roth contributions on Form 8606 - 2nd page to do this properly.

If the check is signed over to Vanguard and deposited as a rollover contribution there's nothing to report.