Roth IRA setup as a Traditional IRA by Fund Custodian

Saving & investing, frugality & simple living. They're all part of the wealth equation.
Here's the place to discuss getting (and keeping!) your money.

Moderator: lvergon

Posts: 6
Joined: Sat Feb 02, 2013 3:40 pm

Roth IRA setup as a Traditional IRA by Fund Custodian

Postby flyboy73 » Mon Mar 18, 2013 11:50 pm

Hi folks, it took me a while to notice (almost 10 years to be exact), but I have noticed a huge mistake made by my IRA custodian for one of my IRA funds. The IRA was made in 2003 for the 2002 tax year, and I contributed the maximum allowed, $3,000. It was supposed to be established as a Roth IRA, but all this time it has been structured as a Traditional IRA. I have proof that it is their mistake because I have a copy of the contribution form marking it as a Roth, and when I called up the custodian, they acknowledged it was their mistake.

I first spoke with the custodian February 1st, and haven't heard back from them since. I have called a few times, and they say they will contact me when they find a solution. Understandably, this appears to be a very difficult issue for them, but I'm a little concerned that I'm being ignored, as I only have about $5,000 in the fund. All my IRAs are Roths, spread out among several funds, and I very much prefer Roths so that I can withdraw the earnings tax free at retirement, or possibly withdraw from the principal without consequence if necessary, both of which I cannot do with the Traditional IRA. True, I could just leave it as is as a Traditional IRA, but I never took the necessary deduction in my 2003 tax return. Without the benefit of a deduction, I have no incentive to leave it as is as a traditional IRA!

Has anyone run into a similar situation? I feel foolish that I had not caught this mistake sooner, as it was basically staring me in the face on the fund's website all this time, but I need to correct this soon.

I am unemployed with no income at the moment, and imagine I will be for the near future, so the possibility of taking the missing tax deduction this year or next is not feasible. Is there any possibility I could file an amended 2002 tax year return to retroactively claim the missing deduction? And this is assuming the IRA stays traditional. If they were to correct this issue by converting it to a Roth, I would then be stuck paying taxes on the contribution amount, even though it was supposed to be setup as a Roth in the first place with my after tax dollars!?!?!?!? Since it's the administrator's mistake, shouldn't they eat the loss and reimburse me if I have pay the taxes to the IRS to convert to a Roth, or if nothing can be done, they could reimburse me the opportunity costs of not taking the deduction in my 2002 tax return.

Anyways, this is a rather complex situation that I hope to resolve in a timely manner, and I look forward to your expert analysis!

Posts: 1173
Joined: Mon Feb 07, 2011 6:33 pm
Location: Illinois

Re: Roth IRA setup as a Traditional IRA by Fund Custodian

Postby bpgui » Tue Mar 19, 2013 2:46 am

I'm not positive, but I think the statute of limitations has run and you would be precluded from amending the 2002 return to take the deduction.

However, since you currently have no income, if you do a conversion, it won't be taxed very much, if at all.

Posts: 1680
Joined: Fri Sep 12, 2008 12:29 pm
Location: Seattle, WA

Re: Roth IRA setup as a Traditional IRA by Fund Custodian

Postby stannius » Tue Mar 19, 2013 9:20 am

Indeed, it seems the statute of limitations is three years. You're not going to solve this through the IRS.

Return to “Personal Finance”

Who is online

Users browsing this forum: Bing [Bot]