Accidentally put TIRA contribution into Roth IRA
I took a $5k deduction on my 2009 tax return and intended to make a traditional IRA contribution. I opened an IRA account at my bank and deposited the $5000 before tax filing time last year. But I just today noticed that the title of the account shows “Roth IRA”, which would be incorrect. That would be after tax money going into a Roth account. How do I fix this? I don’t have any paperwork to show that it’s a bank error – maybe they just didn’t understand me? I want to transfer that money to my regular IRA at another institution, but I can’t transfer Roth money to a regular IRA.
Permalink Submitted by Alan Spross on Sat, 2011-04-09 03:31
You had until 10/15/2010 to notice the error and have the contribution recharacterized as a traditional IRA contribution, but that deadline has now passed and you cannot change the type of contribution.
You must now amend your 2009 return to eliminate the tax deduction because interest will be adding up on the late payment of the additional taxes. In addition, you also need to be sure that your income in 2009 was not too high for a Roth contribution since that would cause you to incur a 6% excise tax as well for both 2009 and 2010. If you need to know the income limits please advise with your filing status.
If you can keep the Roth contribution, consider it a good long term investment, particularly if the account has generated any earnings which will eventually be tax free.
Many bank personnel are not well trained on IRA matters, and things got worse with all the turmoil following the financial meltdown. But in any case, always check the paperwork very carefully right away because errors can be fixed if you get to them in time. Good chance in a few years you will be glad you made some Roth IRA contributions along the way. That said, if you close the Roth account right away, there is no tax and penalty on the first 5,000 you get back and you could use that money to fund your 2010 or 2011 traditional IRA contribution if you have not yet done so. But be sure you can deduct that contribution if you are considering doing this just for the deduction.
Permalink Submitted by Linda Taylor on Tue, 2011-04-12 19:12
Thank you so much for your prompt reply! As it turns out, I went to the bank and they acknowledged this was their error, after checking their paperwork. Supposedly they are going to re-title it as a traditional IRA account. So I think that will solve my problem (I hope!). Thank you so much for your help.
Permalink Submitted by Alan Spross on Tue, 2011-04-12 21:00
That is a good start, but simply re titling the IRA still leaves you with the job of proving it to the IRS. They should send out corrected 5498 forms showing that the contribution was not a Roth, but a TIRA contribution to head off any IRS inquiries.