Author Topic: How should I go about contesting IRA Custodian negligence?  (Read 353 times)

swampwiz

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However, in my case, I believe that my Custodian was negligent in telling me that I could do such a recharacterization when specifically told the representative that I wanted to simultaneously do a recharacterization (of a previous conversion in 2018) and another Roth conversion, and his advice was to simply do them in 2 separate forms, which I did.  Then, the Custodian took a very long time - a week - to come back and tell me that the earlier representative's advice was incorrect.  Had the representative's advice been correct, I never would have submitted either form.  When finally told of this inability to do a recharacterization, I asked that under the circumstances that that 2nd Roth conversion be rescinded - not recharacterized.  (I have had similar errors rescinded without recharacterization, such as when the Custodian mistakenly did a complete Roth conversion rather than a partial one that I had requested, etc.)

OK, so I think I have a sliver of standing to contest this, and I plan on filing a complaint with FINRA.  Under the broad idea of "it doesn't hurt to ask", I'd like to see if the IRS agrees with me in this case;  However, I'm not sure how to go about this without officially filing my tax form with the way I think it should be done (i.e., with the 2nd Roth conversion rescinded), and letting the IRS wheels in motion come back and tell me that there was some unreported Roth conversion in a 1099-R form, at which time I could give me reasoning for which I think it should not be reported.  In all probability, the IRS will rule against me, but I'd like to get my Due Process.  I wouldn't have a problem with the interest charged, or even a penalty, if it's not too much; I want to be very out in the open with this.  I just don't want to get slapped with a giant 75% penalty.  The amount of extra tax liability would be less than $1K, so there would be no problem with not making quarterly payments, and it seems that it would not trigger the dreaded "substantial underreporting of income" as the threshold is $5K.

Any ideas?

secondcor521

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Re: How should I go about contesting IRA Custodian negligence?
« Reply #1 on: May 30, 2018, 09:17:15 PM »
It's not negligence if they make a mistake.  It's not your custodian's responsibility to ensure that you are aware of the tax implications of your transactions.

You're responsible for knowing the tax implications of your actions.  I would be very surprised if you were unaware that the tax laws were changing significantly in 2018 - it was on the news for weeks and weeks.  Even if you didn't know specifically that recharacterizations of conversions were being eliminated, if you just knew that the law changed and that a conversion is a tax-related even, I would think that you should have checked into it.

Good luck sticking it to the man; I go down that path myself sometimes.  But I think you're tilting at windmills and it's going to be a large waste of your time, money and energy.
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swampwiz

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Re: How should I go about contesting IRA Custodian negligence?
« Reply #2 on: June 01, 2018, 09:46:10 AM »
My Custodian has relented and given me an exception to rescind the 2nd Roth conversion.  So I am stuck with the earlier conversion, BUT THAT IT NOT A PROBLEM!  The reason is not that I'm trying to do something that the IRS no longer allows, but that when I asked to do this as part of a combo of doing the 2nd conversion, the Custodian (i.e., the front-line representatives) did not inform me that the recharacterization request could not be fulfilled.  Had the Custodian told me of this inability to do the request at the beginning, I would not have done that 2nd Roth conversion, since *logically* it was part of the same request. 

I am sure that there will be a memo addressed to ALL representatives to make sure that any customer that asks about a recharcterization be told about the change in the law.  And as well, the recharacterization form will be updated with a big warning.

Sometimes the man needs to get stuck.