IRA custodial error who is responsible?IRA Application question?

Submitted by ed belk on Tue, 2020-03-24 23:09

Last year i opened an IRA account for myself (5305-a) to offset my taxes for 2018. This year i wanted to open another IRA account for the same purpose but was informed by the bank (custodian) that my previous contribution was applied instead of 2018 to 2019 and i can’t open an account for 2019 because of that. Here is the question. I asked my bank to contribute for 2018 and they made a mistake and did it for 2019. I filed my 2018 taxes assuming that i had an IRA account opened for this year. My bank can’t find my original application. I found a copy which had my signature only. Does IRA application require two signatures – mine and custodian? Bank refuses to correct this error and tells me that i have to amend my tax return for 2018. I called IRS and they told me that it could be done and it is up to the bank. Bank would not give me any clear explanation as to why they can’t correct this error. Why do they refuse to correct this error? How can they open an IRA account without having my application with two signatures on file?



Submitted by Alan - IRA critic on Wed, 2020-03-25 00:10

Form 5305 A (IRA adoption agreement) does not state which year a contribution is for.  When you make a contribution for 2018 in 2019, you should write on your check “Prior Year contribution” or “2018 contribution”.

  • You certainly cannot be blamed for not knowing that, but if you did so indicate, a copy of your cancelled check should force them to amend the Form 5498 that reported this contribution for 2019. These are the forms that tell both you and the IRS the amount and year of the contribution, but they are issued in late May for the prior year. Not having received one from this bank in May, 2019 would be an indication of trouble, but as it stands now you will get one this coming May showing the contribution is for 2019. 
  • Custodians will not change the contribution year after the 5498 forms are processed unless you can prove that the error is 100% their fault.  So this is likely a lost cause without your having documented proof.
  • Small comfort, but since this contribution reported as a 2019 contribution probably now has quite a loss, you can ask the bank to return it with less the loss. That clears the deck for making a new 2019 contribution in full, but you may not want to do it at this bank if you feel that the bank messed this up.
  • Everyone should check their account statement, or if they do not get one should verify after the IRA has been funded that the contribution is for the correct year.  Or better yet, make only current year contributions, not prior year contributions. 
  • I understand that having to amend your 2018 tax return and pay more taxes is your main complaint, but you also lost a full year of potential IRA contributions (2018).

Submitted by ed belk on Wed, 2020-03-25 02:11

I submitted an Individual Retirement Account Application with the bank. I thought it was a form 5305-A. It looks like this one https://www.broadridge.com/_assets/pdf/traditional-ira-simplifier.pdf  It states the year. The bank says that they don’t have my application on file. I have my copy with my signature only. Can they open an IRA account for me without this application on file? They transferred money from my account so i did not write them any checks.  When i ask them why can’t they correct their mistake they have no answer besides that i signed the application but they can’t show me the copy of my application. They did not send me 5498 and IRS told me that they did not file it for 2019 yet.  IRS told me that the bank can correct this mistake but they simply refuse.  I can use this contribution for 2019 but for 2018 i have to pay taxes because of this mistake.

Submitted by Alan - IRA critic on Wed, 2020-03-25 02:38

Does the copy you have with just your signature show the contribution year as 2018?  Did you provide a copy of that to the bank?  Then they told you your copy is not sufficient evidence for them to acknowledge that they made an error?  If so, you are stuck since the amount of an annual contribution is not enough to justify any legal expenses when the bank probably has access to several legal firms. I wouldn’t throw good money after bad, I would just transfer your funds out of this bank. Consider a large mainstream firm like Fidelity, Schwab or Vanguard, although even with those firms you must bring any error to their attention within a short time or they will treat you as having contributed to the error.

Submitted by ed belk on Wed, 2020-03-25 13:40

I already moved my money out of this bank and i will move ira(s) out of there too. I just wanted to know if application for IRA should have two signatures to be valid. I could have printed this application off the internet and write everything i wanted on it including the year and the amount.  Why can’t they correct their error? Why is it such a big deal to correct it? They would rather lose me as a customer and 80k in savings i had with them than correct the error they made.  This is a small local bank .

Submitted by Alan - IRA critic on Wed, 2020-03-25 14:44

Both parties should sign the form, but if the taxpayer chooses to revoke the contract, that must be done in 7 days. Since the form is supplied to the taxpayer and accepted by the custodian, it’s possible that the form is deemed to have been signed by the custodian. However, even if you were able to have the IRA revoked, you would not get the deduction, you would just get your deposit back. Again, even a small local bank has attorneys ready to defend any legal action you brought, and I don’t think you could find an attorney to even take your case. If any comfort, if you used the firms I mentioned earlier they would likely not accept responsibility now, although they would have been more likely to clarify with you when you opened the account which year your contribution was to be applied to. I also suggest to avoid the temptation to not amend your 2018 return with the plan to take up your position with the IRS if they send you a tax due notice. For the IRS not to catch this, their 5498 matching program with you return would have to fail for 2 years in a row. They would have to miss that you took a 2018 deduction when there was no 2018 5498, and for 2019 they will receive a report of 2 years worth of contributions if you make a 2019 contribution elsewhere.

Submitted by ed belk on Wed, 2020-03-25 19:33

I don’t have a copy of my application signed by both parties and they don’t have it but it deemed to be signed by the custodian even though they don’t have it?!  I am saying it because i  know that they really messed up on it when i was opening the account.  I can apply this amount for 2019 since that is what they did and i am not talking about revoking this contract.  I know i asked them to apply it for 2018 and it is obviouse since i filed my tax return assuming that it was the case.  I am asking them to correct their mistake but they would rather lose me as a customer than do that. Why is that? Accourding to IRS this mistake can be corrected. Why do they absolutely refuse to do so?

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