misclassifed investment into IRA annuity
I am a stock broker/financial planner. In September of 2004 my client deposited $86,000 of after tax money into an Alliance MasterDex 5 Annuity. Unfortunetly a former staff member mis marked the application as an IRA.
The client never took it as a deduction (since he thought it was set up as a normal account)
In 2007 we discoverd the error and sent a letter to Alliance to correct the account classification. It was never fixed. Alliance claimed they never recieved the letter. (we have a dated copy). Unfortuetly it was never followed up on this end.
Fast forward to today. Last month our client upon reviewing his records notified us of the original error. We contacted Allianz. They refused to fix the error since it occured almost 8 years ago and claimed that it was our mistake to begin with. We have all documentation, including copy of original personal check, and application, and statements.
Please help. Please note client never took IRA deductions for this investment.
Client simply wants his account marked correctly as an after tax annuity so that he does not have to pay tax on his original $86,000. ( He knows that his growth will be taxed upon distribution)
Thank you , Carl D Gill 248-649-4759
Permalink Submitted by Alan Spross on Thu, 2012-02-23 16:36
It might require legal assistance at this point to drive this up the ladder at Allianz. Part of their reluctance to correct it may be that they don’t know how to correct it, or perhaps they do and do not want to pay for the excise taxes. I assume that the 5498 Form they issued shows this as a rollover, and the client did not have any such distribution to roll over, so this is no endorsement for the IRS computer matching program either. Recommended IRS procedures to correct this error as an excess contribution would include 8 years of 6% excise taxes plus interest, and that adds up to over half the investment.
While the thought may have occurred to simply file a 2004 8606 form showing a non deductible contribution to a TIRA, the real problem is the contribution would be an excess IRA contribution and there is no statute of limitations for excess contributions unless Form 5329 has been filed.
Therefore, I would look to Allianz first because it was not only their error, but if they can correct this internally and give the client a letter for later use if the IRS brings up the isssue, it will be far cheaper than paying for a letter ruling from the IRS.