lost IRA contribution
Client has IRA. Firm A does investing; Firm B is custodian. Client sent check for 2010 contribution to Firm A, who received it prior to the deadline and sent it to Firm B for deposit and processing. The check was lost along the way so Firm B never got it to make the deposit.
Client wants to send a replacement check (as a 2010 contribution), but Firm B will not treat it as a 2010 contribution, even though Firm A’s records show the check as received in their hands before the deadline for a 2010 contribution.
my thought is to have the client go ahead and replace the check and continue to treat it as a 2010, making sure that she gets a letter from Firm A attesting to the circumstances in case the IRS audits her IRA.
Any other suggestions?
Permalink Submitted by Alan Spross on Tue, 2011-05-31 18:43
There is no solution for this since Firm B has control and this decision is their prerogative.
If the client does as suggested, the IRS will have a mismatch when the 5498 shows the contribution is for 2011, and does not have one for 2010. If client makes another contribution for 2011, there will be two 5498 forms for 2011 adding up to an excess contribution for 2011, and that will trigger a 6% excise tax. Moreover, if a deduction was taken on the 1040 for 2010, the IRS will bill for the additional tax due. There is no way to predict when and if the IRS will catch both these things, but the 5498 forms will be a very clear indication to them that there is a problem. They are also not likely to allow the contribution based on custodian mishandling, lost check in the mail etc.