Money Talk: Long Waits for IRS to Issue Refunds
Question: How long is too long for an IRS tax refund to be disbursed? I got my state tax refund in a matter of weeks. The IRS refund has been “under review” for almost five months.
Answer: A sizable surge in tax refund theft as well as a database breach that exposed more than 300,000 taxpayers’ returns have kept the IRS pretty busy.
At the same time, big budget cuts have left the agency with fewer people to help with these issues.
Five months is a long wait, but people who have been the victims of refund theft report waiting nine months or more to get their money back.
You can try contacting the IRS directly at 800-829-1040, although you’re likely to be on hold for quite a while. If you can’t get a response, you can contact the IRS’ Taxpayer Advocate at 877-777-4778, but be advised its resources have been trimmed as well and it may just refer you back to the IRS.
Question: I have some questions regarding my brokerage accounts. What happens to my investments there if the brokerage company goes out of business? How much of my investments will I be able to recover and how? Also, does it matter if my accounts are IRAs, Roth IRAs, or conventional brokerage accounts?
Answer: Most brokerages are covered by the Securities Investment Protection Corp., which protects up to $500,000 per eligible account, which includes a $250,000 limit for cash.
Different types of accounts held by the same person can get the full amount of coverage. IRAs, Roth IRAs, individual brokerage accounts, joint brokerage accounts and custodial accounts could each have $500,000 of coverage.
So with an IRA, a Roth and a regular brokerage account, you would have up to $1.5 million in coverage.
If you have a few traditional IRAs at the brokerage, though — say, one to which you contributed and one that’s a rollover from a 401(k) — those two would be combined for insurance purposes and covered as one, with a $500,000 limit.
In addition to SIPC coverage, many brokerages buy additional insurance through insurers such as Lloyds of London to cover larger accounts.
It’s important to understand that SIPC doesn’t cover losses from market downturns. The coverage kicks in when a brokerage goes out of business and client funds are missing.
SIPC is commonly compared to the Federal Deposit Insurance Corp., which protects bank accounts, but there’s an important difference between the two.
The FDIC is backed by the full faith and credit of the U.S. government. SIPC has no such implicit promise that if it’s overwhelmed by claims, the government will come to the rescue.
Liz Weston is the author of The 10 Commandments of Money: Survive and Thrive in the New Economy . Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon, No. 238, Studio City, Calif. 91604, or by email at liz@lizweston.com.
