Roth rolled to Regular IRA
Hello: Because of pandemic person inadvertently mobile deposited Roth IRA rollover checks into a regular IRA. Realized this upon preparing 2020 return. Financial Institution will not fix it. The 1099 R is marked “J” early distribution from a ROTH and earnings are marked “G” rollover. Does anyone have any ideas on how to remedy this? Thanks
Permalink Submitted by Alan - IRA critic on Wed, 2021-08-25 19:27
This is a serious problem, almost impossible to fix in a desirable manner when it is not discovered immediately because the TIRA custodian will not cooperate in reversing the transaction when they are not at fault. There is no so called “template” to restore the original intent of these rollovers. But for now, more info is needed. Is reference to the pandemic made to indicate that this was a CRD? If the original distribution was from a Roth IRA, Code J makes sense, but Code G could not apply to this, as it refers to a direct rollover, as a Roth IRA cannot be distributed as a direct rollover. Therefore, perhaps one check was from a Roth IRA, and another from an employer plan? When was the error discovered and first reported to the TIRA Custodian?
Technically, a Roth distribution either from a Roth 401k or Roth IRA is not eligible to be rolled into a traditional IRA, so it becomes an excess contribution to the TIRA. There will be a mismatch between the 1099R forms and the 5498 forms which the IRS could discover at any time. The result is a distribution from the accounts that issued the 1099R forms and the taxable portion can vary according to the Roth IRA ordering rules. The excess TIRA contribution is treated as a regular excess TIRA contribution. Did the person file an extension for the 2020 return? If so, 10/15 is the deadline to remove the excess contribution with allocated earnings and avoid the 6% excise tax for 2020. If so, any gain on the return of excess is also taxable in 2020 because the contribution was made in 2020. Therefore, the 2020 return cannot be filed until the amount of gains are determined and the excess returned.
Once all the details are sorted out (see above questions), it might be possible to apply the following Rev Procedure to do a delayed rollover, but it will require custodian cooperation. Read the following link and note that reason c (IRA owner thought that the rollover was made to an eligible plan) might be applied if the custodian will accept the IRA owner self certification form. Senior staff would have to make the decision and might require additional documentation. Normal staff will probably be unaware of the Rev Procedure.
Microsoft Word – rp-20-46.docx (benefitslink.com)