Roth misreported two years ago
Good morning, I work with a financial advisor whose client made Roth IRA contributions for the 2018 and 2019 tax years for himself and his spouse. By mistake his tax preparer filed these as traditional IRA contributions and deducted the amounts, $5,500 and $6,000 each I think. The client has now received two IRS deficiency letters disallowing the deduction and asking for the additional tax, interest and some penalty (about $8,000).
Are there any options here besides just writing a check? The client and advisor think the insurance company holding this IRA can change these Roth IRA accounts to traditional IRA accounts and send the IRS revised 1099 / 5498 reports. The insurance company will not do this saying it is much too late to fix this. Is that really true? What might the IRS permit in a situation like this, if these contributions were otherwise proper? The clients have about $200K are of AGI and are not in other qualified plans.
Thanks for your insight. Paul McGillvray
Permalink Submitted by Alan - IRA critic on Fri, 2021-04-30 16:14
In addition to the disallowed deduction, are these also excess Roth contributions? The 8000 appears to be loaded up with penalties. But the insurance company is correct that the deadline has passed to actually change the contributions to traditional. If the MAGI for these years allows a full Roth contribution for client’s filing status, there is nothing client can do but pay the tax, although the type and extent of penalties might be questioned or appealed. It’s worse if client also has an excess Roth contribution and the due dates have passed, so that would trigger a separate excise tax. Did the IRS say anything about an excess Roth contribution?