Ask Terry Questions SEP account closed in error by financial institution

SEP account closed in error by financial institution

By Terry Savage on June 16, 2024 | Wild Card

Have a SEP account through Merrill Lynch that was opened by employer in 1997 and untouched by me since then. Merrill Lynch claims they sent letters to my address ( never received) and received no answer so they closed the account and mailed a disbursement check (to same address that I never communicated from) minus the tax penalties of almost $1,000.00. What do I do? I know there will be other penalties, etc, income tax issues in 2025. Help!!

Terry Says

I’m afraid I can’t help you very much.  It’s YOUR responsibility to keep up with all your accounts.  Every financial services company has the right to “escheat” the account to the state, or to close the account if they cannot reach you.  I agree that it was nuts of them to send a check to an address that has not previously responded.

But you didn’t way whether you ever actually received the check!  If you did receive it and cash the check, it will be considered a disbursement — and you’ll also receive a 1099 in the mail next January (at that address!)  Look for it, so you don’t get a tax penalty.  The $1,000 is an “early distribution” penalty — so assuming you are under age 59-1/2.

If so, you are young enough to learn an important lesson about financial record-keeping.  It is ALL ultimately your responsibility.  There’s an old Savage Truth:  “The lessons that cost the most, teach the most!”

This is one of those expensive lessons!




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