Mistake IRA contribution to current year

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smozes
Posts: 1
Joined: Fri Apr 13, 2018 3:58 pm

Mistake IRA contribution to current year

Post by smozes » Fri Apr 13, 2018 4:06 pm

Hello. Last year I made a spouse contribution to my wife’s Roth IRA, with Vanguard. It was meant for 2016 and we went through incredibly many steps to get this right. We forgot about it since.

This week I initiated another spouse contribution, and was not allowed to contribute into 2017 because the last one was mistakenly already put in 2017. So we lost 2016.

Vanguard is claiming they are not responsible for this and that nothing can be done to correct it. Why not, do I need to talk to the IRS about it, amend my previous return? Will we owe back taxes? We are at a loss as to how that happened.

Silk McCue
Posts: 1333
Joined: Thu Feb 25, 2016 7:11 pm

Re: Mistake IRA contribution to current year

Post by Silk McCue » Fri Apr 13, 2018 6:18 pm

Sorry for the hassle you are dealing with.

Do you have documentation from VG showing that it was supposed to be for 2016? Normally your have to select what year it is for if you are doing it online. Unless you can definitely show that VG is at fault then I am afraid there is nothing that can be done. Just drop funds into a 2018 acct and carry on.

Edit add

Since you did fund a Roth there are no tax consequences as you already paid taxes.

Cheers

Alan S.
Posts: 7803
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Mistake IRA contribution to current year

Post by Alan S. » Fri Apr 13, 2018 6:35 pm

You do not report Roth contributions on your return unless you qualify for the Savers Credit.

If you claimed a Savers Credit on your 2016 return, then you will have to amend 2016 to eliminate that contribution from Form 8880. Otherwise, there is nothing to change for 2016.

If you made that 2016 contribution by check after 1/1/2017 you should have written either "Prior Year contribution" or "2016 Contribution" on that check. You would then have documentation leverage to force Vanguard to report a 2016 contribution and issue a corrected 5498.

Everyone should always check their statements or on line account after all transactions, as errors caught promptly can usually be corrected. After a period of time you will generally have to show the custodian to be 100% at fault to secure a correction.

bltn
Posts: 211
Joined: Mon Feb 20, 2017 9:32 pm

Re: Mistake IRA contribution to current year

Post by bltn » Fri Apr 13, 2018 7:08 pm

The question I have regards cotributing to a backdoor Roth IRA the year after the intended year for the credit. If a contribution is made this year before April 17 to a non deductible IRA for year 2017 can this later be transferred to a Roth IRA for year 2017? I ve gotten two different answers from different sources. I hate to bother my accountant this last busy weekend. This is for one of my children.
Thanks for the help.

Silk McCue
Posts: 1333
Joined: Thu Feb 25, 2016 7:11 pm

Re: Mistake IRA contribution to current year

Post by Silk McCue » Fri Apr 13, 2018 7:20 pm

bltn wrote:
Fri Apr 13, 2018 7:08 pm
The question I have regards cotributing to a backdoor Roth IRA the year after the intended year for the credit. If a contribution is made this year before April 17 to a non deductible IRA for year 2017 can this later be transferred to a Roth IRA for year 2017? I ve gotten two different answers from different sources. I hate to bother my accountant this last busy weekend. This is for one of my children.
Thanks for the help.
As long as you understand the requirements to do a Backdoor Roth then yes you can open a 2017 non deductible IRA before the 17th and later convert it. You aren’t “transferring” it to a Roth for 2017 you are converting it to a Roth.

Cheers

2cents2
Posts: 328
Joined: Sun Mar 02, 2014 11:31 am

Re: Mistake IRA contribution to current year

Post by 2cents2 » Sat Apr 14, 2018 4:51 am

bltn wrote:
Fri Apr 13, 2018 7:08 pm
The question I have regards cotributing to a backdoor Roth IRA the year after the intended year for the credit. If a contribution is made this year before April 17 to a non deductible IRA for year 2017 can this later be transferred to a Roth IRA for year 2017? I ve gotten two different answers from different sources. I hate to bother my accountant this last busy weekend. This is for one of my children.
Thanks for the help.
The non deductible tIRA would be reflected on your 2017 taxes. This basis would be carried over to next year’s taxes. The conversion to the Roth would be on 2018 taxes (assuming the conversion is done in 2018). It would be a good idea to review the instructions for doing the conversion and write a note to your future self to be sure to reflect the conversion on next year’s taxes (if you go through with the conversion.)

tibbitts
Posts: 8051
Joined: Tue Feb 27, 2007 6:50 pm

Re: Mistake IRA contribution to current year

Post by tibbitts » Sat Apr 14, 2018 5:39 am

smozes wrote:
Fri Apr 13, 2018 4:06 pm
Hello. Last year I made a spouse contribution to my wife’s Roth IRA, with Vanguard. It was meant for 2016 and we went through incredibly many steps to get this right. We forgot about it since.

This week I initiated another spouse contribution, and was not allowed to contribute into 2017 because the last one was mistakenly already put in 2017. So we lost 2016.

Vanguard is claiming they are not responsible for this and that nothing can be done to correct it. Why not, do I need to talk to the IRS about it, amend my previous return? Will we owe back taxes? We are at a loss as to how that happened.
Your post is far too vague and lacking in detail for anyone to help you, and most of the rest of the thread is other people hijacking the thread with their own problems (which I've been known to do from time to time too.) It occurs to me that you should consider yourself lucky that you decided to make the contribution for this year to the same custodian - otherwise you would have wound up contributing twice to 2017. Not being able to make an IRA contribution for one year is a huge non-event and unless there are circumstances you don't explain (saver's credit, etc.) there may be no consequences to you at all except a minor lost opportunity. Who knows maybe some day that Roth will be taxed at 90% coming out and you'll be thankful you avoided contributing for an extra year.

Sometimes seemingly minor mistakes in reporting happen; one happened to me (or more precisely, I allowed one to happen) and I'll pay perhaps seven or eight thousand dollars for it over the rest of my lifetime - and then depending on when on die, maybe my beneficiaries will get to pay for it over theirs, and their beneficiaries, etc. etc. Sometimes there is no substitute for just doing things correctly in the first place.

Contributions aren't just assigned random years, although it may seem that way sometimes. When I was contributing to my TRPrice retirement account, before the internet era, at least several contributions I mailed in were attributed to the wrong year despite me marking the form correctly. Correcting that was easy right after the contribution is made. And then sometimes I'd need to move a contribution from one year to another. I always waited until it was the correct calendar year to enable me to do that - move contributions from year to year - and I never waited until close to the contribution deadline, just for that reason. As for my other problem that I only discovered this year, correcting errors from before 1993, made by companies that no longer exist, is... close enough to impossible for me to just write it off as a multi-thousand-dollar lesson. Everybody has a few of those, and this wasn't my biggest.

2cents2
Posts: 328
Joined: Sun Mar 02, 2014 11:31 am

Re: Mistake IRA contribution to current year

Post by 2cents2 » Sat Apr 14, 2018 8:08 am

....It was meant for 2016 and we went through incredibly many steps to get this right....


Yes, back to the OP. I was not certain by what you meant here. The incredibly many steps--does that mean that you discovered the mistake last year and you went through many steps to get it corrected, but it didn't get corrected? Or, did you mean that you took some steps to initially indicate it was a 2016 contribution and you just didn't notice 'til now that Vanguard applied it to the wrong year?
Maybe you could tell us how the contribution was made. Did you make it online with an electronic funds transfer? Or, was it a check for which you documented the contribution year on the memo line and you have a paper trail?

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