ira mistake
My client had an advisor from Ameriprise and requested a 25k withdrawal from his regular account. The advisor erred and took it from his ira account. The mistake wasn’t picked up until his accountant prepared his taxes and told him he owed fed state and w/d penalties totalling 11500.
Ameriprise claims it owes him only half the taxes and offered 6500, stating that the money would be taxable at some point. He is 45 and has lost 25 years of tax deferral. I told ameriprise they owe his taxes and penalties and the difference between 25k in a tax deferred account versus 14500(the net he received after taxes) in a taxable account since the money cannot be returned to a tax deferred account.
Am I right? how would you calculate the damages?
Permalink Submitted by Brent Steiner on Mon, 2007-12-10 21:39
Are they eligible for the Revenue ruling 2003-16 – where the 60 day rollover period would be extended? –
Permalink Submitted by Brent Steiner on Mon, 2007-12-10 21:41
From Eds Book “Rev. Proc. 2003-16, 2003-4 I.R.B. 359, which “provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to section 408(d)(3)(I), the Service will consider all relevant facts and circumstances, including:
(1) errors committed by a financial institution;
(2) inability to complete a rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or postal error;
(3) the use of the amount distributed (for example, in the case of payment by check, whether the check was cashed); and
(4) the time elapsed since the distribution occurred.””
Someone else can explain the process of filing a Private letter ruling
Permalink Submitted by Bruce Steiner on Mon, 2007-12-10 23:56
It’s hard to calculate the damages with precision. If the money were in an IRA, he could convert it to a Roth (beginning in 2010 if his income is over $100,000), and if he lives to his life expectancy leave it in trust for his grandchildren. You’d have to assume a rate of return for money in the IRA, a rate of return for money outside the IRA, an income tax rate, an estate tax rate, etc. Since it might be 100 yeas or so until the last distributions are made, small changes in the assumptions could produce large changes in the results.
As Brent pointed out, if you can show it was the advisor’s error, you may be able to get a ruling allowing a late rollover. It will probably cost a few thousand dollars in legal fees, plus the IRS fee, which I think is $500. We recently obtained several rulings allowing late rollovers.
Bruce Steiner, attorney
NYC
also admitted in NJ and FL
Permalink Submitted by anthony bonadies on Tue, 2007-12-11 03:20
I wrote ameriprise and they took the position that the money cannot be returned. Perhaps they would see this as an admission of liability. The sixty days expired.
I think it probably makes sense to try with the irs, but it would help if ameriprise would cooperate.
In worst case scenario does anyone have any experience with arbitration?