Roth, Taxes and Mistakes

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Deb19
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Roth, Taxes and Mistakes

Post by Deb19 »

I currently contribute to my school's 457, and my husband and I also contribute to our Roths. Through casual reading last night I learned that you cannot file separately and do a Roth IRA. When our tax advisor suddenly passed away, his daughter in law took over. She was the one that had us move to filing separately so we would get a larger refund from 2012- 2014. In 2015, all she said was she could no longer file us separately. I did not ask why. (She should have filed a 5329 form so we could have corrected this problem, she did not.) Now I am sick from this huge and costly tax problem we now have to deal with. We will owe 6% penalties for every year this continued..... plus all Roth money (30,000) will need to be pulled with the 10% early withdrawal also to be paid. Has anyone gone through anything like this? Also, what should we do with this 30,000?? This could throw our retirement off now even. Right now I want to bury the money in my backyard and never invest again. I am devastated as I was trying to save money, but ultimately have ended up costing us. Any advice or suggestion to deal with this would be so appreciated. I am sickened over this. Our family sacrificed much to make these Roth contributions.
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dwickenh
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Re: Roth, Taxes and Mistakes

Post by dwickenh »

Does she have an errors and omissions policy to cover her obvious short comings? Not sure if that is used in tax advising, but it is used in Insurance sales.
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delamer
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Re: Roth, Taxes and Mistakes

Post by delamer »

How was the money invested while it was in the Roth? You can invest the same way in a taxable account. Or maybe it would make sense to increase your contributions to the 457.

Do you know how much the total penalties will be yet? It is upsetting to lose any amount of money -- especially due to someone else's incompetence -- but hopefully this is a one-time setback.

Have you considered finding a new accountant to deal with it all?
sport
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Re: Roth, Taxes and Mistakes

Post by sport »

dwickenh wrote:Does she have an errors and omissions policy to cover her obvious short comings? Not sure if that is used in tax advising, but it is used in Insurance sales.
This is the avenue I would pursue. If she does not have insurance, she might still be willing to pay some of your costs to avoid being sued, and having her reputation damaged.
kaneohe
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Re: Roth, Taxes and Mistakes

Post by kaneohe »

Deb19 wrote:I ....................... She was the one that had us move to filing separately so we would get a larger refund from 2012- 2014. .................................. We will owe 6% penalties for every year this continued..... plus all Roth money (30,000) will need to be pulled with the 10% early withdrawal also to be paid......................................
How much larger were your refunds from 2012-14? Perhaps that will compensate for (hopefully) a large part of the penalties. Also note that the 10% EWP is only on the earnings, not the contributions which you can withdraw at any time.
Avo
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Re: Roth, Taxes and Mistakes

Post by Avo »

Can you file amended returns to change to joint filing? There is a 3-year deadline to claim a refund with an amended return, but I'm not sure if this applies if you owe additional tax.

Your accountant needs to fix this at no cost to you. Roth requirements is basic stuff. Because she changed back to joint filing in 2015 without telling you why, it is reasonable to question her honesty as well as her competence.

But I would get another accountant to review whatever her plan is. And if she does not agree to make you whole, I would consult an attorney.
The Wizard
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Re: Roth, Taxes and Mistakes

Post by The Wizard »

I think you might be able to do a backdoor Roth contribution if MFS, since tIRA contributions are not impacted.
Someone else should confirm my supposition.

But there are time limits on recharacterization, so that's not an answer to the whole problem...
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CedarWaxWing
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Re: Roth, Taxes and Mistakes

Post by CedarWaxWing »

I would definitely get a good CPA for further tax work.. and get this situation reviewed by that CPA.

The CPA should be able to give you a complete and accurate summary of your situation and the best way to deal with it before going to the person who has done this to you.

Certain nuances of how to correct errors and the best way to do this are things about which the CPA should have expertise which may be of great benefit to you, and may help you avoid or minimize the penalties you speak of.

Your being a victim of someone professional errors and then her not disclosing this to you may allow you to avoid or reduce the penalties.. or not... but a fully qualified tax CPA is likely the best way for you to get the most favorable solution.

All in all.... when my taxes became complicated, a good CPA for me has been better than the bread and butter tax guys I tried prior to that. A CPA has professional performance standards of competence and ethical behavior to live up to. They also usually have assets and a means to make good on their errors if necessary. They have a licensing board that can mediate disputes when gross malpractice occurs by imposing fines and or compensation to a client.

Best,

M
Mudpuppy
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Re: Roth, Taxes and Mistakes

Post by Mudpuppy »

The Wizard wrote:I think you might be able to do a backdoor Roth contribution if MFS, since tIRA contributions are not impacted.
Someone else should confirm my supposition.

But there are time limits on recharacterization, so that's not an answer to the whole problem...
The deadline to recharacterize is October 15 of the following year for the given tax year (e.g. October 15, 2017 for 2016 contributions). Since these are 2012-14 contributions, the deadline has passed for them to recharacterize the Roth IRA contributions to traditional IRA contributions, so unfortunately, that won't work.
The Wizard
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Re: Roth, Taxes and Mistakes

Post by The Wizard »

Mudpuppy wrote:
The Wizard wrote:I think you might be able to do a backdoor Roth contribution if MFS, since tIRA contributions are not impacted.
Someone else should confirm my supposition.

But there are time limits on recharacterization, so that's not an answer to the whole problem...
The deadline to recharacterize is October 15 of the following year for the given tax year (e.g. October 15, 2017 for 2016 contributions). Since these are 2012-14 contributions, the deadline has passed for them to recharacterize the Roth IRA contributions to traditional IRA contributions, so unfortunately, that won't work.
Ok, so going forward I suppose the backdoor Roth could work if there was a valid reason for MFS in the first place, which I see no evidence of...
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retiredjg
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Re: Roth, Taxes and Mistakes

Post by retiredjg »

The deadlines for recharacterization have passed. But I believe you can still amend the 2014 return to MFJ instead of MFS. That would reduce some of your excise tax, but it since she thought you paid less tax MFS, it might increase your taxes to the point it is a wash. BTW, the dates are unclear. Did you mean taxes for 2012, 2013, and 2104? Or the taxes that were filed in 2101, 2013, and 2014? If the latter, I think you could amend the taxes for the last 2 years.

Assuming she was an actual tax-preparer rather than a friend helping out, I think you should ask her to pay for half of the damage that you suffer because of this. You might even be able to make her pay enough to "make you whole'. Or that may be wishful thinking on my part. :(

Regarding the 10% penalty for early withdrawal, your actual contributions should not be subject to that, just the earnings. Ordinary contributions to Roth can be withdrawn without penalty.

Lots of moving parts and I think there is more to learn before actually going forward with fixing this. For example, And I think you can leave some of it in there and use it as your 2017 Roth IRA contribution if you have not already made contributions for this year. Then maybe you can leave some as your 2018 contribution? Or I think I've heard you actually leave the earnings in the Roth, not take them out.

It is obvious you are upset about this, but I think the damage may end up being less than you expect. And remember, you have saved the money. That is the important thing. Try to get past "being sickened" about this - it is unlikely to actually ruin your retirement - and get it fixed as best you can and move on.
pshonore
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Re: Roth, Taxes and Mistakes

Post by pshonore »

First, its very unusual for a couple filing MFJ to get a bigger refund by filing separately. You should have a knowledgeable person go over all returns from those years and make sure they are correct. As an example, one taxpayer cannot take the standard deduction while the other itemizes. Cap loss c/o losses are limit to $1500, etc.

Second, good preparers stand behind their work and should reimburse you for penalties and interest resulting from their mistake but most will not pay any additional tax resulting from it because if they had done the return correctly you would have paid that tax.
Alan S.
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Re: Roth, Taxes and Mistakes

Post by Alan S. »

Deb19 wrote:I currently contribute to my school's 457, and my husband and I also contribute to our Roths. Through casual reading last night I learned that you cannot file separately and do a Roth IRA. When our tax advisor suddenly passed away, his daughter in law took over. She was the one that had us move to filing separately so we would get a larger refund from 2012- 2014. In 2015, all she said was she could no longer file us separately. I did not ask why. (She should have filed a 5329 form so we could have corrected this problem, she did not.) Now I am sick from this huge and costly tax problem we now have to deal with. We will owe 6% penalties for every year this continued..... plus all Roth money (30,000) will need to be pulled with the 10% early withdrawal also to be paid. Has anyone gone through anything like this? Also, what should we do with this 30,000?? This could throw our retirement off now even. Right now I want to bury the money in my backyard and never invest again. I am devastated as I was trying to save money, but ultimately have ended up costing us. Any advice or suggestion to deal with this would be so appreciated. I am sickened over this. Our family sacrificed much to make these Roth contributions.
Since the deadline has passed to recharacterize any of these contributions as TIRA contributions, and the excise tax is owed for at least 2012 and 2013, any gains on these contributions are allowed to remain in the Roth, contributions to be removed will come out tax free, and there is no 10% penalty. For 2014, if it makes sense to do so, the MFS return for 2014 can still be amended to a joint return. That would result in the 2014 contributions being allowable and not excess unless your joint MAGI is too high. Therefore, you need to determine if your joint modified AGI in 2014 permitted regular Roth contributions. What did you do about IRA contributions in 2015, 2016 and this year?

Form 5329 automatically will apply excess contributions to later years if you are eligible and did not make contributions in those later years. The 6% excise tax stops for the amount that can be assigned. Accordingly, you need to figure out if any of the former excess contributions can be assigned to 2015, 2016 or 2017 and that depends on your tax situation in those years. You should not remove a prior excess if it can be assigned to a later year up to the current year. Once this situation is clarified, I will be able to indicate what needs to be done with those 2012-2014 excess contributions, and how it should be reported. Note that many CPAs do NOT know how to handle this correctly.

I assume that each of you had at least 10,000 of MAGI reported on the 2012-2014 returns, and that neither of you therefore was allowed a partial contribution.

You will probably need to have your CPA determine if 2014 will be amended, and if there is a net benefit of doing so. If your 2014 joint MAGI is too high for regular Roth contributions, the 6% excise tax for that year will stand.

Here is an example of the excise tax assuming you each made a 5000 contribution in each of those 3 years. 2012 excise tax would be 600, 2013 excise tax would be 1200, 2014-2016 would be 1800 each year. That totals 7200 less any contributions that can be assigned on the 5329 forms and less the 2014 contributions if the 2014 filing status is amended to joint and your income is not too high.

At this point, you probably have further questions......
bikechuck
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Re: Roth, Taxes and Mistakes

Post by bikechuck »

[quote="pshonore"]First, its very unusual for a couple filing MFJ to get a bigger refund by filing separately.

I am not sure that I agree with this if you take State Income Taxes into consideration. My spousal unit and I live in a state with a very small joint filing credit and a graduated tax rate schedule. Filing separately has not made much of a difference in our federal tax liability but we have saved "bigly" on state income taxes by filing separately on our state returns. I doubt if our situation is rare at least in our state. Cumulatively over the last decade or more I'll bet that we have saved in excess of $10,000 by filing separately
retiredjg
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Re: Roth, Taxes and Mistakes

Post by retiredjg »

Alan S. wrote:At this point, you probably have further questions......
Deb19, before asking questions, please clarify if the taxes were for tax years 2012, 13, and 14 or filed in 2012, 13, and 14. It is unclear from your post which is correct and it will make a difference.

I'm interested in learning more on this subject. Hope this is not as bad as you expected.
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Deb19
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Re: Roth, Taxes and Mistakes

Post by Deb19 »

Thanks all for your input. It is indeed for tax year 2012, 2013, 2014. The CPA even had us fill out a questionnaire that had a question ' did you contribute to a Roth ira'....I marked yes! A new CPA wants to review it all of course.... but I sent an email to the original CPA....alerting her to my concerns and asking for help in the matter. So far no response. I am unsure what to do next. Originally, I thought it made sense to give the old CPA a heads-up to see what she would be willing to do and hopefully to get her to help pay for some of this. If she offers to "fix", I was going to ultimately have my new CPA review it to ensure it is correct. I thought I would let her do most of the leg work as it is her fault to begin with. Thoughts on this? I am not sure what the correct order should be in what I do.....and meanwhile....I'm hit with waves of fear and anguish over the money loss. I am a teacher starting school soon and also sending my oldest child off to college for the first time. Very emotional time right now. I just want this fixed and to have closure but it doesn't appear that is likely. Thanks for your advice and help.
bayview
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Re: Roth, Taxes and Mistakes

Post by bayview »

Deb19 wrote:... A new CPA wants to review it all of course.... but I sent an email to the original CPA....alerting her to my concerns and asking for help in the matter. So far no response. I am unsure what to do next. Originally, I thought it made sense to give the old CPA a heads-up to see what she would be willing to do and hopefully to get her to help pay for some of this. If she offers to "fix", I was going to ultimately have my new CPA review it to ensure it is correct. I thought I would let her do most of the leg work as it is her fault to begin with. Thoughts on this?...
Just from what has been posted, I'm not convinced that she knew/ knows what to do. Therefore instead, I'd go with what your new CPA advises, and ask the original one to make you whole.

--Side note re your understandable upset: once everything churns through the machinery, I doubt that that the dollar figure will be significant over the long run, although certainly it could be painful in the short run. While it's outrageous that it happened, it's probably going to be the equivalent of a speed bump on down the road.

Stop beating yourself up. You did what you thought was right; the equivalent of the "reasonable man/person" test. There are crooks and fools out there, and unfortunately, you seem to have run into one.

Dial back the panic to 10% or so, and keep your head up. You can do this. :beer
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri
retiredjg
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Re: Roth, Taxes and Mistakes

Post by retiredjg »

I agree you can take a deep breath and dial back the panic. Even if this does not go in the best possible way, it seems like it will not be as bad as you have projected so far.

I'm wondering if anybody knows if she must give the first CPA a chance to make it right before using someone else?

I think attempting to work it out through CPA #1 is wise. If she does not respond, that is an answer and will support your "case" against her should you decide to go through small claims court to be "made whole".

Concentrate on being reasonable and keeping good records.
bsteiner
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Re: Roth, Taxes and Mistakes

Post by bsteiner »

One possibility would be to amend 2014 (and 2013 if it's still open) from separate to joint.

Another possibility would be to apply for a ruling granting an extension of time to recharacterize for 2012 (and for 2013 if it's closed or if you don't want to amend it from separate to joint, and for 2014 if you don't want to amend it from separate to joint). There were some rulings on this when there was a $100,000 income cap for eligibility to convert and taxpayers with income over $100,000 converted. However, the cost of a ruling request may be more than the amount involved.
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celia
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Re: Roth, Taxes and Mistakes

Post by celia »

retiredjg wrote:I'm wondering if anybody knows if she must give the first CPA a chance to make it right before using someone else?
OP can go to anyone she wants, just like she originally did. (She can even fix it herself, if she feels confident.) The thing about not letting CPA#1 fix it, is that she will end up paying CPA fees again. And if she was to go to small claims court to make CPA#1 reimburse her, the CPA could rightfully claim she could have fixed it for no charge, if she had been given the chance.

OP, Before CPA#1 proceeds with any corrections, be sure you won't be charged for them.
I think attempting to work it out through CPA #1 is wise. If she does not respond, that is an answer and will support your "case" against her should you decide to go through small claims court to be "made whole".
I agree she should let CPA#1 fix it. CPA#1 may need to do some research on this and this isn't urgent. But it should be taken care of this year. An amended 2014 return isn't due until April 15, 2018, although OP (and the CPA) would be smart to avoid the January to April rush for 2017 returns.

The OP can have another CPA in another firm review the changes before sending them in. But that would be her choice on her dime.
Mudpuppy
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Re: Roth, Taxes and Mistakes

Post by Mudpuppy »

celia wrote:
retiredjg wrote:I think attempting to work it out through CPA #1 is wise. If she does not respond, that is an answer and will support your "case" against her should you decide to go through small claims court to be "made whole".
I agree she should let CPA#1 fix it. CPA#1 may need to do some research on this and this isn't urgent. But it should be taken care of this year. An amended 2014 return isn't due until April 15, 2018, although OP (and the CPA) would be smart to avoid the January to April rush for 2017 returns.

The OP can have another CPA in another firm review the changes before sending them in. But that would be her choice on her dime.
This presumes that CPA #1 is (a) actually a CPA and (b) knows how to fix it. We don't have enough information to know if either of those is true. All we know is the daughter-in-law of the OP's original tax advisor (not even clear he was a CPA) took over when the original tax advisor passed.

It can be worth the extra expense to bring in the right professionals when one personally does not know the rules well enough to verify the work. I would caution the OP to screen another professional carefully though. There are many CPAs and tax advisors out there, and not all of them are knowledgeable in this area (as Alan S. already pointed out).
Topic Author
Deb19
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Re: Roth, Taxes and Mistakes

Post by Deb19 »

Thank you all. My tax person who messed up is indeed a CPA. I live in a small community so when you mention getting someone who can handle this ....how does one know if a CPA is truly qualified? The new one I have faith in says he will need to research it because this doesn't come up often. He did immediately acknowledge that I should not have filed separately. Upon honest reflection, my role in this is that my instinct made me question her competence years previously....yet I continued to go because she was "nice" and it was local. Lesson everyone can learn from me.....trust your instincts AND act upon them. This new CPA I have in mind is older, seems wiser/knowledgeable....but again I live in a rural area.....does anyone know how I can be assured that this one can "handle" it?
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Deb19
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Re: Roth, Taxes and Mistakes

Post by Deb19 »

In other words, what questions do I need to ask to screen a new, competent CPA? Just if they have experience in this sort of thing? If they don't, is that a deal-breaker? Thanks in advance.
jasonrecite25
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Re: Roth, Taxes and Mistakes

Post by jasonrecite25 »

Being a CPA does not qualify someone to be a competent personal tax advisor. There are two CPAs in my family and while they are smart they don't have any expertise in personal tax services and their day jobs don't have anything to do with taxes at all. Research what the CPA is and you will understand that a lot more is needed to be a good personal tax advisor.

I would use a service like Yelp or ask around for recommendations. Check websites, backgrounds, years of experience, etc. Maybe more challenging in a small community, but personal tax is normally not that complicated. Bascially screen them like any service provider: certifications, licenses, experience, references, etc.

I had a very similar situation occur, but with my dentist selling his practice/patients to his daughter straight out of dental school.
retiredjg
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Re: Roth, Taxes and Mistakes

Post by retiredjg »

A CPA may never deal with taxes. So having the CPA title guarantees you nothing. You need to ask about tax filing experience specifically.

What you really need to do is figure this out yourself by working through the form yourself. Then you will be able to have an intelligent conversation with the new CPA. Or you may find it is entirely possible to do this yourself.

You will also have to decide if you want to amend your 2014 taxes from MFS to MFJ. There are a few situations where filing separately is a good idea. Do you know why she chose to file MFS?

Did you understand what Alan said about how those ineligible contributions might be applied to years afterwards?
Topic Author
Deb19
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Re: Roth, Taxes and Mistakes

Post by Deb19 »

She had us switch to filing separately because of increased state refunds.

Please explain if you will, the last part. I think I read about it. Right now I put money into our roths each month....do I need to stop that in light of what you are suggesting? Is that for certain an option?

I heard the 5329 form has changed through the years. I will be honest, I am overwhelmed right now and truly don't "want" to do it.....especially if it will be different versions I need to fill out.
retiredjg
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Re: Roth, Taxes and Mistakes

Post by retiredjg »

It is correct that you can leave part of that $30k in contributions in the Roth IRA and make them part of this year's IRA. Whether you should stop your IRA contributions is tough to say though. It might make your excise tax a little less for 2017 if you do. You can save that money on the side to help pay the excise tax and the CPA.

Did you make full Roth IRA contributions for each of you in 2015 and 2016? If not, some of that $30k could be used to make those contributions full.

I would not worry to much that Form 5329 has changed over the years. The IRS knows that people may have to do multiple years on things like this. They try very hard to make it work right. Give it a try by downloading the form for years 2012, 2103, 2014, 2015, and 2016. Each one builds on the previous year, so you have to start with 2012 and work forward.

Here's the first one. https://www.irs.gov/pub/irs-prior/f5329--2012.pdf. Note that you do not have to deal with the entire form, just the section that applies to you. It is only a few lines. If you need instructions, I didn't look but they are likely on the internet as well.

Once you get 2012 done, start on 2013 and see how it goes. Even if you do hire someone to fix this problem for you, it will be to your benefit to understand just what is going on.
MarkNYC
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Re: Roth, Taxes and Mistakes

Post by MarkNYC »

Without defending the actions of the CPA, I'm going to put some blame on the IRS for allowing the OP and other taxpayers to get into this situation. Here's why:

I have never heard of the IRS notifying a taxpayer of an excess Roth IRA contribution. If it ever happens, it's rare, even though the IRS has the information needed to detect any excess contribution: (1) filing status, (2) Modified AGI, and (3) Form 5498 showing the Roth contribution for the year. By not notifying the taxpayer of the error a year or so after it happens, the IRS is allowing the taxpayer to make the presumably innocent mistake year after year until someone (not the IRS) stumbles upon the multi-year errors, and the multi-year penalties/excise taxes have at that point compounded to significant dollars.

This leaves the taxpayer with a difficult choice: either self-assess by filing multiple years' delinquent Forms 5329, which they are not legally required to do, or do nothing, hoping that the IRS will never catch the errors which they have thus far missed for numerous years. I'm not advocating doing nothing, but some if not most taxpayers will end up making that choice and keep their fingers crossed, even though the unfiled Form 5329 has no statute of limitations.

I think the IRS should take the necessary steps to improve their compliance enforcement in this matter, so that excess Roth contributions will be detected early, keeping the taxpayer's financial penalty to a minimum.
pshonore
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Re: Roth, Taxes and Mistakes

Post by pshonore »

I believe good tax software will also flag this. Most preparers don't bother putting in Roth contributions even though recording them as part of one's annual return makes it easier to track contributions over the years and would probably have caught this error.
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Deb19
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Re: Roth, Taxes and Mistakes

Post by Deb19 »

I completely agree about the IRS 's role in this.

I have contacted 5 different CPA's. They all have told me something different! I don't know where to go or who to trust. Can someone please help me. Can I call the IRS for the true facts and steps to take? Some tell me to do nothing. Don't open a can of worms ...their exact words. Some say just take out contributions and that is enough. Some say differing effects to what many in this forum have said. Please don't tell me to tackle my self. I am overwhelmed and full of anxiety. My first child leaves for school and I am a teacher starting school soon. I just cannot find anyone with experience in this sorta problem.
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Deb19
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Re: Roth, Taxes and Mistakes

Post by Deb19 »

I was told by a CPA that there is not just one way to handle this. What?? I don't understand that? How can their NOT be! He told me there is so much tax code it would fill up my entire house. Sigh. I cannot believe that there is not a straightforward way to take care of this.
The Wizard
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Re: Roth, Taxes and Mistakes

Post by The Wizard »

Deb19 wrote:I completely agree about the IRS 's role in this.

I have contacted 5 different CPA's. They all have told me something different! I don't know where to go or who to trust. Can someone please help me...
A sad situation, this.
I agree with MarkNYC on the IRS, but even Vanguard seems complicit. Their website keeps telling me that I have $6500 I can contribute this year, even though I have no earned income so far this year in retirement...
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Topic Author
Deb19
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Re: Roth, Taxes and Mistakes

Post by Deb19 »

I should mention that our original CPA will not help us....even though I have a checklist from the years in question where I indicated that we indeed contributed to our roths in those years! She said because I did not include the 5398 she had no idea to know that. How can I include the 5398,when you don't get those until AFTER tax returns are even due?
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Mlm
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Re: Roth, Taxes and Mistakes

Post by Mlm »

I would start by withdrawing the contributions so that I could sleep at night. Other than that I probably wouldn't do anything but that's me.
In the end you will have to decide for yourself but I would NOT call the IRS. You could probably call five times and get five different answers from them as well.
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celia
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Re: Roth, Taxes and Mistakes

Post by celia »

We can help you. I'll PM you, but for the benefit of others, it would help to know what forms/schedules were in your (and your spouse's) 2014 tax return. Which of these forms did each of you use for the 2014 year:

Form 1040 (summary of everything)
Schedule A (Itemized Deductions)
Schedule B (Interest and Ordinary Dividends)
Schedule C (Profit or Loss from Business) [self-employed)
Schedule D (Capital gains and losses)
Form 8606 (Nondeductible IRAs)
any other forms?
Did either of you collect Social Security in 2014?
What state do you live in (to see if we need to amend state returns)?
(be sure to look on the back of each page in case two forms were printed back-to-back)

Amending your 2014 could be as easy as adding your line x number to your husband's line x number or as difficult as completely re-doing a form or two.
Last edited by celia on Tue Aug 08, 2017 9:54 pm, edited 1 time in total.
The Wizard
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Re: Roth, Taxes and Mistakes

Post by The Wizard »

Deb19 wrote:I should mention that our original CPA will not help us....even though I have a checklist from the years in question where I indicated that we indeed contributed to our roths in those years! She said because I did not include the 5398 she had no idea to know that. How can I include the 5398,when you don't get those until AFTER tax returns are even due?
Small claims court time then, gotcha...
Attempted new signature...
fundseeker
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Re: Roth, Taxes and Mistakes

Post by fundseeker »

Alan S. wrote:Since the deadline has passed to recharacterize any of these contributions as TIRA contributions, and the excise tax is owed for at least 2012 and 2013, any gains on these contributions are allowed to remain in the Roth, contributions to be removed will come out tax free, and there is no 10% penalty. For 2014, if it makes sense to do so, the MFS return for 2014 can still be amended to a joint return. That would result in the 2014 contributions being allowable and not excess unless your joint MAGI is too high. Therefore, you need to determine if your joint modified AGI in 2014 permitted regular Roth contributions. What did you do about IRA contributions in 2015, 2016 and this year?

Form 5329 automatically will apply excess contributions to later years if you are eligible and did not make contributions in those later years. The 6% excise tax stops for the amount that can be assigned. Accordingly, you need to figure out if any of the former excess contributions can be assigned to 2015, 2016 or 2017 and that depends on your tax situation in those years. You should not remove a prior excess if it can be assigned to a later year up to the current year. Once this situation is clarified, I will be able to indicate what needs to be done with those 2012-2014 excess contributions, and how it should be reported. Note that many CPAs do NOT know how to handle this correctly.

I assume that each of you had at least 10,000 of MAGI reported on the 2012-2014 returns, and that neither of you therefore was allowed a partial contribution.

You will probably need to have your CPA determine if 2014 will be amended, and if there is a net benefit of doing so. If your 2014 joint MAGI is too high for regular Roth contributions, the 6% excise tax for that year will stand.

Here is an example of the excise tax assuming you each made a 5000 contribution in each of those 3 years. 2012 excise tax would be 600, 2013 excise tax would be 1200, 2014-2016 would be 1800 each year. That totals 7200 less any contributions that can be assigned on the 5329 forms and less the 2014 contributions if the 2014 filing status is amended to joint and your income is not too high.

At this point, you probably have further questions......
This seemed like a great and comforting answer, but I'm not sure the OP read it well. It makes it sound like it might not be such a huge issue after all.

To the OP, I'd try to let it go for a couple of weeks. Having a child head off to college is a big enough deal by itself. So, hopefully you can relax a little and come back to this later. Good luck!
retiredjg
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Re: Roth, Taxes and Mistakes

Post by retiredjg »

Deb19 wrote: Please don't tell me to tackle my self. I am overwhelmed and full of anxiety. My first child leaves for school and I am a teacher starting school soon. I just cannot find anyone with experience in this sorta problem.
You have some choices.

1) You can pick one of the CPAs to help you and pay that person. To do that, you need to have an idea of which you believe is closest to your version of right. To do that, you need to actually read the form and the instruction. Or just guess.

2) You can ignore it. That does not seem consistent with your nature. I think that might drive you nuts.

3) You can let people help you. Alan S 's last message seemed to be waiting for more information - he seemed willing to help. Celia has made a direct offer to help.

This is a stressful time for you, but this does not have to be done this week. I think it should be done by the end of the year to avoid more excise taxes for 2018.

Stressful projects have a way of growing in our minds and become overwhelming. But really, I think it is not going to be that difficult.

Please just take a look at section IV of this form. It's only 8 lines.

https://www.irs.gov/pub/irs-prior/f5329--2012.pdf

Just read it and put it down for a day or two and let the back burner of your mind cogitate on it. I think you will realize this is something you can do.
pshonore
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Re: Roth, Taxes and Mistakes

Post by pshonore »

I would not use a CPA for this UNLESS they specialized in personal tax returns. I would try to find an Enrolled Agent.

From the IRS website:
An enrolled agent is a person who has earned the privilege of representing taxpayers before the Internal Revenue Service by either passing a three-part comprehensive IRS test covering individual and business tax returns, or through experience as a former IRS employee. Enrolled agent status is the highest credential the IRS awards. Individuals who obtain this elite status must adhere to ethical standards and complete 72 hours of continuing education courses every three years.
I would ask that person the best course of action to take. If I did not get a satisfactory answer, I would keep looking. You can start your search at https://www.naea.org/
Topic Author
Deb19
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Re: Roth, Taxes and Mistakes

Post by Deb19 »

Thank you all! I will keep plugging away and address ASAP. I appreciate your help and replies. (Sometimes half the battle is knowing you are not alone, I think.)
Topic Author
Deb19
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Re: Roth, Taxes and Mistakes

Post by Deb19 »

Celia,
Thank you for your help. Here are the forms that we used that you asked me to answer about on the forum:
For 2014, my husband and I each used:
1. Form 1040
2. No Scedule A - no itemized deductions
3. For myself only, yes to Scedule B

Please note: we got a letter from the IRS later that year. Our accountant made the mistake (to the best of my memory) of putting all the interest and dividends under mine when it should have been separated between us(?) (something to that effect) Our CPA "fixed" her mistake and the IRS then sent us a letter saying that they received it and no further action was required on our part.

4. No Schedule C or D, no 8606, did not collect social security. I, ONLY, had Form 1116, Foreign Tax Credit,....... and we BOTH had Residential Energy Credits, Form 5695.

I hope this helps. Thank you so much.
Deb
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celia
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Re: Roth, Taxes and Mistakes

Post by celia »

The combined 2014 tax return looks like it will be fairly easy and straightforward.
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