Roth Tax Question

[Guest ESH22]

When my wife quit working in 1998, we moved her approx $3,000 401(k) over to a Roth IRA at a brokerage (no income or other issues that would prohibit the Roth election). In early 1999, prior to filing our federal return, I requested this be unconverted to a traditional IRA, and consequently did not report any income associated with the Roth account. It recently came to my attention that the brokerage never performed the unconversion. In looking at this website today, I noted the 12/31/99 deadline for modifying 1998 transactions, which makes me think it is too late for me to send a second request to the brokerage to uncovert the Roth back to a traditional. If it is in fact too late to unconvert, do I recognize all income associated with the 401(k) to Roth conversion in 1999, and if so, how do I go about this since it is unlikely I will receive a 1099?

Thanks,

ESH

[John G]

1. You have a beef with your custodian. Bring this sloppy neglect to their attention.

2. It is too late to correct it as the year has ended.

3. Technically you need to refill your 1998 tax return since that is when the conversion occurred. I suggest that you attach all prior letters of instruction and tell them why you are refilling. If this costs you accounting fees, I suggest that you bill your custodian for those costs, plus any charges or penalties. Your cover letter may ask them to wave any penalties because of the custodian screw-up.

4. Given the small amount, you might be tempted to just tag it on the 99 return with an explaination, but I don't think the IRS would accept this. You have some responsibility because you are supposed to read your statements. Refile your 1998 return.

5. Don't wait for the IRS to contact you, show your good faith by acting ASAP. You will probably find some leniency in the "mass Roth confusion years".

6. Talk with your tax preparer.