ROTH Recharacterization Request was NOT Processed
Hello,
I made a big mistake. I thought that a ROTH IRA recharacterization request was similar to a ROTH conversion request or IRA contribution – which are valid as long as they are received before the deadline. Major mistake! I did not fax my recharacterization request for a 2010 ROTH conversion until the afternoon of the final deadline (Oct 17, 2011). The broker/custodian firm acknowledges that their employees received the recharacterization request (fully filled out and with correct information) and logged it in while they were still working, but they did not process it before they left for the evening.
I called the custodian as soon as I, to my horror, saw that the amounts in the IRA and ROTH had not changed and they told me that nothing can be done and that they are not aware of any IRS process that could be used to process the recharacterization. I also called the IRS 800 number (a few times, just to make sure) and the answer I got each time was that nothing can be done and that there is no IRS process to try to change/appeal.
Are those answers correct? Is there really nothing that I can do? (Other than hopefully finally stop procrastinating)
Thank you very much!!!
(I also asked a separate question about splitting taxes resulting from two separate 2010 ROTH conversions over 3 years (2010 for one ROTH and 2011 and 2012 for the second ROTH), which would be another solution to the problem).
Permalink Submitted by John Smith on Fri, 2012-04-20 16:39
Also, anyone have any idea how often this happens? From talking to a representative of the custodian, I got the impression that there is supposedly a decent number of people who end up with this problem every year. (Not sure if he was just trying to make me feel better/less stupid).
Not trying to blame them, as I was the one who procrastinated, but I would hope that if I were the one who programs their web page and designs the form, I would include a warning somewhere stating that it has to be PROCESSED instead of just received before the deadliine (unless, of course, they can’t do that for legal reasons somehow).
Hopefully someone here has heard of this before and has some information…
Permalink Submitted by Denise Appleby on Fri, 2012-04-27 13:30
Try escalating the matter to a manager. Good luck
Permalink Submitted by Jose Morales on Fri, 2012-04-27 15:47
What exactly are you trying to get changed? The 1099-R and 5498 that were issued for these transactions are exactly the same whether you did this transaction on January 1 or 2010 or December 31 of 2010. Of course, the IRS deadline is your tax filing due date plus extensions but honestly that is really on the honor system. Neither the 1099-R nor the 5498 will show the dates the transactions occurred and if you keep your records showing you completed the form and submitted the request in a timely manner then you most likely have all the evidence you would need in the event you ever were audited and needed to prove that this recharacterization was done on time.
Permalink Submitted by Alan Spross on Sat, 2012-04-28 03:42
Apparently, IRA custodians have varying in house processing rules with respect to deadlines. For example, here is a copy of a section of a TRP IRA agreement:
>>>>>>>>>>>>>
To effect a recharacterization, you must notify the custodian or trustee of both the
First IRA and the Second IRA before your recharacterization deadline for the year of the contribution
(or conversion) and supply both custodians/trustees with complete information to
enable them to effect the transfer.
>>>>>>>>>>>>>>
Some custodians may refuse to process these requests even if received prior to the deadline, others may not. From a practical standpoint, the IRS will go by the 1099R/5498 forms that are issued. Obviously, if the custodian refuses to process a recharacterization there will be no 1099R and no 5498. The recharacterization will not be done, and any beef will be with the custodian. If an appeal is to have any chance whatsoever, it needs to be made right away, certainly not after the books are closed for IRA transactions for the year.
There seems to be general agreement that a “postmark rule” applies to IRA contributions (ie postmarked by the tax due date), but honoring a postmark for other related deadlines does not seem to be addressed anywhere, so IRA owners are at the mercy of the internal rules of the custodian. And as you indicated, custodians usually do not make clear exactly what their cutoff date is, or whether different transactions have different cutoff dates. Perhaps we have a “postmark rule” with respect to contributions because contributions transfer assets to custodians, but certain other transactions such as recharacterizations and distributions do not produce new assets………….and therefore remain subject to varying procedures and seasonal service issues.
I think doing anything within a week of any of these deadlines is taking a huge gamble that it will not get done at all.