Purported Traditional IRA Conversion to Roth IRA Gone Bad

[Guest EMM118]

In 1999, an individual contemplated converting a traditional IRA to a Roth IRA. However, as the individual's AGI was several hundred dollars over the threshhold amount, this was not possible. However, the custodian opened up a Roth IRA for the individual. The individual never paid taxes on the conversion as he claims he was not eligible to do the conversion.

Is there anything the individual can do at this point? Any corrective programs?

One thought is to roll over the amount in question to a new custodian and establish a traditional IRA. I'm not sure if anything else can be pursued at this late date.

Thanks in advance for your assistence. Ed

[John G]

Facts are not clear. Did the customer give the custodian written instructions to convert and IRA to a Roth? How do you go from "contemplating" to a conversion done? Did the customer subsequently give any written notice that they were not eligible to convert?

When, if ever, did the custodian become aware that the customer was ineligible?

Did the customer ever get any documents indicating a Roth conversion? If so, why did they not respond and correct what they thought was an error?

How much money is involved? If we are talking a minor amount of money, I think the IRS will be more forgiving and allow an after the fact correction... but I have no case studies or PLRs to justify that view.

I can't tell from what you said how this process occured and what was known at what time. Clearly, the customer had an obligation to pay attention to the paperwork and correct anything that went wrong.