Client inadvertently rolled an IRA into a Roth IRA in 2023. Can taxpayer reverse/ receive relief from the IRS
The client inadvertently converted their traditional IRA in 2023 to a Roth IRA. The taxpayer has now received a notice from the IRS requesting information on this conversion. The taxpayer was just attempting to change banks where the previous IRA was invested. The new Bank filled out the paperwork wrong and opened up, incorrectly, a Roth account to accept the rollover funds. Can the taxpayer request relief from the IRS for this mistaken conversion?
Permalink Submitted by Alan - IRA critic on Thu, 2025-01-23 16:41
No. About the only recourse is to take legal action against the bank if they feel the error is totally the bank’s fault. But not confronting the bank for over a year will probably erase any chance of the bank accepting responsibility.
To be clear, if the taxpayer had any responsibility for this error at all, even alerting the bank within a week would probably not result in a fix. Ignoring the 1099R for an entire year was another mistake. In May, 2024 the IRS and taxpayer received a Form 5498 reporting a conversion contribution to the Roth.
Client will therefore owe the taxes plus an underpayment penalty for late payment of the 2023 tax bill. But some unwanted conversions could actually turn out to be beneficial down the road – more taxes for 2023 but less taxes and lower RMDs in retirement.