IRA bank clerical error they refuse to correct
In early 2020, I made a $7000 contribution for the 2019 tax year. But the bank recorded it as for the 2020 tax year. I have no proof that I requested the contribution for the Prior Year. I did not discover this error until last week when I attempted to make a Prior Year contribution for 2020. The bank refused the contribution, as I had, according to them, already made a contribution for the 2020 tax year. I called the bank and pushed hard for them to change their accounting of the year of the contribution; they refused. Of course, I reported the contribution on Schedule 1 in 2019. Do I have to amend 2019 (and pay penalties and interest), or can I just not report a contribution in 2020? And most importantly, is there any way for me to avoid losing a year’s contribution? Thanks for your help.
Permalink Submitted by Alan - IRA critic on Sat, 2021-05-15 17:00
Unfortunately, if you do not have clear proof that you identified that contribution as a prior year (2019) contribution, you are out of luck. It is always wise to check your account after making a contribution to make sure it was assigned to the correct year, especially if you are contributing in the 1/1 to 4/15 window where a contribution could be made for either year or both years. By now, all the bank reporting to you and the IRS has been done. You might have also looked for Form 5498 received in summer 2020 to report 2019 contributions and you would not have received one in this case.
If you deducted the contribution on your 2019 1040, you will have to amend that return to delete the deduction, so additional taxes will be due for 2019.
Since the contribution was assigned to 2020, if your income qualifies you for the deduction, you can deduct the 2020 contribution, or if not you could recharacterize it as a Roth contribution or have it returned with earnings by 10/15. FYI – any custodian would make the same decision here as your bank did, so they were consistent with normal industry procedures.
Perhaps this is the opportunity to catch up and make current year contributions. If you make your 2021 contribution now, while you lose the 2019 space, you will effectively starting in 2020 begun to make current year contributions instead of prior year contributions which results in the contributions you make for a year having an extra year to generate tax deferred income.