Bank error, Roth converted to Rollver IRA

Submitted by Dave So on Thu, 2017-10-05 01:40

Hello,

First time here. I do have a unique problem. I owned a ROTH IRA that was invested in CDs. In 2014 I chose to move them to ETFs. To do so, the bank had to move my account to the brokerage division of the business. While doing so they converted my Roth to a Rollover IRA. So for about 3 years this has gone unnoticed. My bank cannot give out tax advice (they say), so here I am. Any advice or direction on this matter would be much appreciated.



Submitted by Alan - IRA critic on Thu, 2017-10-05 03:00

  • Not much you can do now. Even if this was 100% the fault of the custodian, they are going to claim that you should have brought this error to their attention at the time of the transfer or at least in that same calendar. The IRS has not issued guidance on how to correct such an error, so even if the custodian wanted to assist, they would have no idea how to proceed.
  • Technically, a Roth IRA cannot be rolled into a TIRA by rollover or direct transfer (other than recharacterization). Therefore, this would be an excess regular IRA contribution and would incur the 6% excise tax for each year in the TIRA. It would now be withdrawn from the TIRA per Sec 408(d)(5) tax free, but there would be no way to get that money back into your Roth IRA. This outcome would fall far short from offsetting the costly effects of the error.

Submitted by David Mertz on Thu, 2017-10-05 03:15

Since the money was not moved to another Roth IRA, this also does not qualify as a trustee-to-trustee transfer but instead constitutes a distribution from the Roth IRA.  Potentially this situation would qualify for self-certification on the basis of financial-institution error that this would qualify for a waiver of the 60-day deadline to complete a rollover to another Roth IRA upon removal of the excess contribution now in the traditional IRA.  I don’t know that this would alleviate the excess contribution penalties incurred while the funds were in the traditional IRA, but it would at least get the funds back into a Roth IRA.

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