retirement

Broker's mistake with Roth IRA transfer

Judy O'ConnorDear Tax Talk,
I have a dandy of a question regarding penalties and options. With the help of our broker in June 2013, $6,000 was transferred out of my wife's (age 58) Roth IRA and transferred not to her Roth at another brokerage, but to my (age 59 1/2) Roth IRA.

I'm thinking I should expect taxes and penalty for my wife's transfer out. I am retired and had no earned income and did not qualify for a contribution. My only income was pension and dividend income. What taxes and penalties should I expect to pay, and do I have an option of reversing or correcting erroneous transfers? Do I have to pay for a broker's mistake with a Roth IRA transfer?

Lesson learned: Pay close attention to your brokerage statements!
-- Terry

Dear Terry,
I agree with you on paying close attention to your brokerage statements. This is considered an excess contribution to your Roth IRA account. It is a good thing that you saw the error because you have time to get this fixed, and that will save you the 6 percent excise tax that applies to excess contributions. You have until on or before the due date of your 2013 Form 1040 (including extensions) to get this corrected.

You need to contact the broker as it is not just the $6,000 that was incorrectly deposited into your account that needs to be removed. The earnings on the $6,000 will need to come out of your account also and will be treated as earned and received in 2013. I would get started on this right away and confirm that everything is done correctly and timely by the broker.

Good luck and thanks for your question.

Ask the adviser

To ask a question on Tax Talk, go to the "Ask the Experts" page and select "Taxes" as the topic. Read more Tax Talk columns.

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

advertisement

Show Bankrate's community sharing policy
          Connect with us
MORTGAGE HOME EQUITY AUTO CDs CREDIT CARDS
Product Rate Change Last week
30 year fixed 4.20%  0.10 4.30%
15 year fixed 3.28%  0.02 3.30%
5/1 ARM 3.53%  0.19 3.34%
 
View Rates in your area Next
Product Rate Change Last week
30K FICO-based HELOC 4.38% --0.00 4.38%
50K FICO-based HELOC 4.11% --0.00 4.11%
100K FICO-based HELOC 3.96% --0.00 3.96%
 
View Rates in your area Next
Product Rate Change Last week
60 month used car loan 2.63% --0.00 2.63%
48 month used car loan 2.91%  0.01 2.90%
60 month new car loan 3.16%  0.01 3.17%
 
View Rates in your area Next
Product Rate Change Last week
1 Year CD 0.90%  0.00 0.90%
2 Year CD 1.10%  0.01 1.09%
5 Year CD 1.81%  0.07 1.74%
 
View Rates in your area Next
Product Rate Change Last week
Balance Transfer Cards 15.66% --0.00 15.66%
Cash Back Cards 16.36% --0.00 16.36%
Low Interest Cards 10.86%  0.01 10.87%
 
Next
advertisement
CD & INVESTING NEWSLETTER

Learn the latest trends that will help grow your portfolio, plus tips on investing strategies. Delivered weekly.

Blog

Jennie Phipps

Is Medicare really healthier?

The Medicare Trustees' report says that solvency of the program has improved, but a top health care analyst questions the long-term health of the program.  ... Read more

advertisement
Partner Center
advertisement

Connect with us