IRA Transfer Mistake
In 2008 a client directly transferred 4 CD IRA accounts into an IRA at another custodian. Recently the client discovered that one of the 4 accounts was actually a Roth IRA. The new custodian states that they do not have the ability to reverse the transaction unless the delivering custodian will send them a letter of instruction stating that they made an error and sign a “hold-harmless agreement”.
Are there any other possible ways to correct this problem?
If left as-is, can the amount transferred in from the Roth be counted as basis or after-tax?
Permalink Submitted by Denise Appleby on Tue, 2008-10-28 22:23
[quote=”meischen@”]In 2008 a client directly transferred 4 CD IRA accounts into an IRA at another custodian. Recently the client discovered that one of the 4 accounts was actually a Roth IRA. The new custodian states that they do not have the ability to reverse the transaction unless the delivering custodian will send them a letter of instruction stating that they made an error and sign a “hold-harmless agreement”. [/quote]
It is unlikely that the old custodian’s attorneys will allow them to sign a hold harmless agreement for this; even if it can be proven that they made the error.
[quote=”meischen@”] Are there any other possible ways to correct this problem? [/quote]
The tax code does not address these errors-so it depends on the custodian, and what they are willing to do.
[quote=”meischen@ “] If left as-is, can the amount transferred in from the Roth be counted as basis or after-tax? [/quote]
No.
Wish I had better responses. I hope it works out well. The longer it takes, the worse it gets. Try to get it fixed before year end, to prevent any reporting with the incorrect account balance
Permalink Submitted by Jose Morales on Wed, 2008-10-29 16:24
Trying to have the sending IRA custodian accept full responsibility is going to be a very tough sell. I wouldn’t count on that, even without knowing all of the details of this transaction.
It would probably be more productive for the client to admit that they made a mistake and offer to sign a “hold harmless” agreement for both custodians. This would ease the minds on both sides and allow them to come up with a solution without worrying that the client is going to take legal action for a mistake that they made.