2020 Missed Roth Conversion
Hello,
We had an issue were our back office did not process a 2020 Roth conversion by the year end deadline. It was not the client’s fault. What would be the proper guidance to offer to the client since it was a back office error at my company? I’m just looking for help on how to resolve this with the client and what would be the proper next steps. Any feedback would be greatly appreciated.
Thank you.
Permalink Submitted by Alan - IRA critic on Fri, 2021-01-15 15:16
If this was company negligence, and not just a client leaving insufficient time to complete a year end conversion, there may be latitude in correcting the error. But the IRS does not make public exactly what authority you have in doing this, but time is certainly critical here. If authority exists, you could process a distribution and report it on a 2020 1099R. You would also have to determine if the conversion 5498 issued for the Roth will reflect the contribution as made in 2020 or 2021. That effects which year the 5 year conversion holding period starts, but this is a minor issue in the scheme of things.
Perhaps a quick call to larger firms you have a relationship with might answer the question of your authority to rectify the error. Of course, the 1099R forms need to be processed very soon.
Otherwise, if you conclude that you do not have the authority, or top management will not want to sign off on this, I guess you would have to determine how best to notify client based on client’s personality, but it will have to be soon, as client and/or their tax preparer will be looking for this 1099R in about 4 weeks. I would certainly mention the amount of 2020 tax savings client would have, especially if client is retired and doing the conversion to replace 2020 RMD space. Not getting the conversion done, might put any qualified dividends and cap gains in the 0 bracket and also reduce the amount of SS included in AGI, and you would definitely want to factor that into any financial settlement you choose to offer client.