Roth Conversion

[bzorc]

A question has arisen as to a taxpayer who initiated a Roth Conversion in November, 2005, when the taxpayers AGI was $90,000. The taxpayer paid the tax on the conversion with their 2005 return. However, the new custodian of the IRA failed to complete the conversion until January, 2006, and has issued a 2006 Form 1099-R stating that the conversion occured in 2006. The taxpayers AGI in 2006 is over $100,000, so a conversion could not occur in 2006.

The question is whether the taxpayer can leave things as they are; that is, the conversion occured in 2005, or do they have to file an amended return removing the conversion in 2005, and then having to go through a recharicterization of the Roth in 2007, due to the inability to convert to a Roth in 2006.

Any replies would be helpful! Thanks much.

[John G]

If you can document that the custodian had ample time to post the transaction (such as by your letter to them, or better still a letter from them indicating their mistake), you may be able to write to the IRS and ask for them to accept the transaction as if it occured in 2005. The IRS just collected a year in advance for a conversion - so they are BETTER off. Keep the documentation from the IRS response as you are very likley to get questions from the IRS on your 2006 return.

Again.... this is another reason to look at your statements. On a Roth conversion, I would actually call 2 weeks after the request to get a confirmation that it was done. You are partially at fault here because you relied upon your custodian and did not monitor this transaction.

TO EVERYONE ! Monitor those monthly statements. The details are important. Don't assume that some clerk is going to get it right. And, don't wait till November and get lost in the year end crush of transactions.