Can Custodian correct an error of transferring a Roth as a Traditional IRA in error after 4 years?

Submitted by john wilson on Mon, 2018-05-14 02:17

I just discovered that 4 years ago in 2014 when I did a trustee to trustee transfer of a Roth, it got titled as a traditional IRA in error. At the time I and receiving bank thought it was a traditional, and I not catch it until now, so I have some fault.
From what I can tell reading the internet is that this is complicated for me to correct, but there may be a chance to get the 2 custodians to correct it. Can custodians issuing corrected 5498’s and 1099’s and opening a Roth for the money fix this? I read examples where custodians were completely at fault were completely correct everything. Does IRS allow for custodians to do this even if I was at fault? I wonder if they need IRS permission to fix it, since I could find no published guidance on how a bank could fix this.
I am holding out hope for a bank done correction, as it sounds like the alternative for me is some combination of forms 8606 and 5329 to pay 6% penalty and claim non deductible IRA contributions each of the years. And considering the Roth as having been liquidated rather than transferred. Are there other options? Would filing 8606 and 5329 require amended returns?

Do you have any advice on working this out with the bank custodians, or know if they can even do it? I have a little time to try, as I always file taxes with the 6 month extension. I was over 60 when transfer first made and amount is under $19000. Do I have to get both bank’s custodians to do this, since the money has been held by 2 banks as a traditional IRA?
Maybe a custodian who has done this successfully has some advice as well.
If it comes down to fixing it myself, what might I expect a CPA fee be to do this?
I made a mess of things, but I hope someone has some guidance for me.
Thank You.



Submitted by Alan - IRA critic on Mon, 2018-05-14 03:11

  • The IRS correction procedure for this would cost you more than doing nothing. You would still lose your Roth, have 4 years of excess contributions to the TIRA @ 6% unless some part of this was an eligible contribution because you did not otherwise make a contribution in that year. The only solution that would actually help you would be from having documentation such that the receiving bank would retitle the IRA as a Roth to the extent of the rollover. But this is where you will run into a brick wall. I would not gamble that the end result would justify spending more money on legal fees because banks have an army of lawyers to resist such requests.
  • The IRS has not published what authority IRA custodians have to correct errors, or at least it is not public info. If the bank is large enough their legal Dept probably knows what they can do and perhaps HOW to do it, but that would be their proprietary info.
  • If you want to pursue a true long shot where you spend time but not more money, you would have to start with very clear documentation. For starters, you would need a copy of the closing statement from Bank 1 and the opening statement or statement showing the addition to the TIRA at bank 2. I assume there was no 1099R or 5498 issued. How was the transfer done – did you fill out papers for bank 2 to pull the account out of bank 1? If so, you probably do not have a copy but if that paperwork does not identify the IRA at bank 1 as a Roth account, at the end of the day bank 2 will take the position that this is your error. If the actual error is some combination of the bank and you, that will not help. Did the transfer go into a new account at bank 2 or an existing account?  If a new account, why would you not have opened a Roth account?  The remote expectation is that you would have to show that 100% of the error was committed by bank 2, probably  because the only bank that can help you now is bank 2. Bank 2 would be looking to see if either you or bank 1 contributed to the error, and in either case Bank 2 would likely end the discussion.
  • Not sure if you caught this even after 4 months, you would get any cooperation from the bank.

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