Mistake made by WFA in a Roth conversion
WFA made a mistake on my December 2020 Roth conversion. I checked the box that there should be NO tax withholdings. They, however, sent about $4,400 over to the IRS. This was not discovered by me until tax prep time. They have clearly admitted it was their mistake. I have been trying to get this resolved for 2 months now. One remedy they suggested is that I write a check now (now 6 months later) for $4,400 (that was withdrawn and paid to the IRS in Dec 2020) to be deposited back into the traditional IRA account. I was told they would, “certify it as late rollover due to financial institution error.” I was told that then the $4,400 withdrawal they made by mistake in 2020 would then NOT be subject to 2020 income tax or a tax penalty. Is that correct? I am concerned that if I do this AND if I’m audited for my tax return, the IRS doesn’t agree with this solution and them I am stuck with the bill.
Permalink Submitted by Alan - IRA critic on Wed, 2021-06-09 21:37
It seems like you should have your choice whether to write a rollover check to your TIRA account which would eliminate the tax on the withholding, or to your Roth IRA account which would result in the full conversion you requested. If rolled to the Roth IRA, it would still be taxable as your original full conversion would have been. Either way you would complete the self certification form and give WFA the original and keep a copy. You should check the first and third reasons for the late rollover as both are true. The IRS knows that the self certification was used from the Form 5498 issued by WFA showing a late rollover. They will probably accept this, but the issue is not final until they do.
So a rollover to the TIRA will eliminate the tax and penalty, while a rollover to the Roth would eliminate the penalty but not the tax. The IRS will apply the 4400 withholding to your 2020 income tax return.
Following is a link to the entire procedure.
Microsoft Word – rp-20-46.docx (benefitslink.com)