rollover to a Roth IRA

[betheeg]

rollover from qualified plan has been completed during 2002. While doing 1099 for distribution it has been discovered that it was rolled into a Roth IRA which you cannot do. Any advice on what to do from here? Is distribution now considered a lump-sum subject to tax and penalties?

thanks...

[Appleby]

You have an ineligible rollover to the Roth. Ineligible rollovers are treated as excess contributions and should be removed as such.

Since this was done in 2002, you have until April 15, 2003 plus tax filing extensions to correct.

If the amount is significant, it may be worthwhile to write the IRS and ask for an exception to be made – to allow the amount to be treated as is it was rolled to a Traditional IRA. The IRS was making these exception for the 1998 tax year due to the newness of the Roth IRA. This may not be the case for 2002.