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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 6238
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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I just realized that I made a BIG mistake on my 2014 Return in that I

Customer Question

I just realized that I made a BIG mistake on my 2014 Return in that I moved funds from my Rollover IRA into my Roth IRA, over $300K, and mistakenly checked box off that it was a rollover into another non-Roth IRA. Now I have done the 1040X that shows I owe an additional $92,503 on Federal for , and have no idea how much penalty I will have to pay, plus, I owe another $109,244 on my 2015 Federal taxes, what can I do if I do not have the money right away? Also, I will need to take the money out of my Rollover IRA, how much percentwise should I leave in my IRA to cover the additional taxes I will have to pay on money I move out of my Rollover IRA, my regular gross income is a little over $100K, my rollover funds from 2014 brought my AGI a little over $453K. And I have not yet determined how much additional MA tax I will owe for 2014.
Submitted: 9 months ago.
Category: Tax
Expert:  Stephen G. replied 9 months ago.
David:Have you received a notice from the IRS yet?Did you intend to rollover your IRA into a Roth?Why would you do that all at once? I'm asking because I'm trying to figure out what we may be able to do about this? How old are you? When is your date of birth?
Expert:  Stephen G. replied 9 months ago.
When you say you "mistakenly checked box off that it was a rollover into another non-Roth IRA".What box on what form did you check that off?So, you did this "rollover" from a traditional IRA to a Roth IRA within 60 days?So the IRA withdrawal was 350,000. plus?
Expert:  Stephen G. replied 9 months ago.
You could have fixed this whole thing with only minor tax or penalty up until October 15, 2015.When did you discover the problem & how did you discover it?
Customer: replied 9 months ago.
Have you received a notice from the IRS yet? NODid you intend to rollover your IRA into a Roth? YESWhy would you do that all at once? I'm asking because I'm trying to figure out what we may be able to do about this? DID IT OVER A NUMBER OF ROLLOVERS (TYPICALLY MONTHLY) DURING THE YEAR AND THEN WITHDREW THE MONEY TO MEET MONTHLY EXPENSES I DID NOT HAVE ENOUGH MONEY OTHERWISE TO COVER, DID THE SAME IN 2014 AS IN 2015 TOO.How old are you? When is your date of birth? I AM 62 MY BIRTHDAY IS *****When you say you "mistakenly checked box off that it was a rollover into another non-Roth IRA".What box on what form did you check that off? BOX WAS IN HR BLOCK SOFTWARE AND BASICALLY ASKED FOR TOTAL AMOUNT ROLLED OVER INTO OTHER IRAS (BUT NOT ROTH IRAS) AND I PUT WRONG AMOUNT DOWN RESULTING IN TAXABLE INCOME BEINGSo, you did this "rollover" from a traditional IRA to a Roth IRA within 60 days? NO DID IT TYPICALLY MONTHLY IN 2014 AND 2015So the IRA withdrawal was 350,000. plus? YES, SPREAD OUT OVER EACH YEAR 2014 AND 2015 ALMOST 700K TOTAL FOR BOTH YEARSYou could have fixed this whole thing with only minor tax or penalty up until October 15, 2015.When did you discover the problem & how did you discover it? DISCOERED PROBLEM WHEN I WAS DOING THIS YEARS 2015 TAXES, THEN WENT INTO 2014 HR BLOCK TAX FILE AND SAW THE MISTAKE I MADE
Customer: replied 9 months ago.
ON 2014 1040 FORM ITEM 15A I HAD AMOUNT AS 4626,582 AND 15B TAXABLE 0
Customer: replied 9 months ago.
CORRECTION: ON 2014 1040 FORM ITEM 15A I HAD AMOUNT AS $626,582 AND 15B TAXABLE 0
Expert:  Stephen G. replied 9 months ago.
I thought you said about it was almost $700,000. over 2 years, yet you have $626,582 in 2014only?
Expert:  Stephen G. replied 9 months ago.
Now, this is important.These "rollovers" did they go from Trustee to Trustee or did you handle the money yourself?
Customer: replied 9 months ago.
After discovering my error when doing 2015 taxes via 2015 HR Block tax program, I reran the 2014 HR Block tax program correcting my error for 15B taxable amount from 0 to $275,947, my AGI rose from $160,620 to $436,567, and my actual tax due increased from $34,968 to $127,471.
Customer: replied 9 months ago.
I thought you said about it was almost $700,000. over 2 years, yet you have $626,582 in 2014only?
The IRA distribution amount of $626,582 was half ROTH and half conventional IRA, so taxable amount was only $275,947
Expert:  Stephen G. replied 9 months ago.
How did you do them?Did they go Trustee to Trustee or did you handle the money?
Customer: replied 9 months ago.
I did the transfers through fidelity as both IRA accounts were with them
Expert:  Stephen G. replied 9 months ago.
When you say you didn't have enough money to meet expenses were you making withdrawals from the Roth too? I'm confused about the necessity for transferring $30,000. of taxable IRA money per month to a Roth & how does that help with your monthly expenses?In order to pay the taxes you are going to have to take the money out of the Roth IRA. Hopefully it's still there. Otherwise you'll be in the same boat for 2016.With all these funds in the IRAs the IRS is not going to give you a whole lot of time to pay off the taxes. You may be able to work out a payment over 6 months, but I'm not sure how much that will help you as you'll pay interest on the unpaid balance, currently 4%, plus 1/2 of 1% a month (or the equivalent of 6% a year) and a condition of that is that you stay current for 2016.My advice would be to engage a local CPA to assist you in dealing with the IRS and to work out a funding plan for the taxes. You are dealing with so much money here in taxes, penalties & interest, particularly for the 2014 tax year (I'm talking thousands of dollars in just the basic penalties); you are also going to be penalized for not making sufficient estimated tax payments during 2014 & 2015 to cover the additional tax on the withdrawals; you really need to get some hands on guidance to work with this situation from a financial planning aspect as well as the tax situation. I don't know who advised you, if anyone, about switching this kind of money from a regular IRA to a Roth at this rate, generating this amount of tax, but in 45 years of practice this is the worst tax advice (if there was any) I've seen. I'm appalled that nobody at Fidelity spoke with you about what you were doing, what your objectives were and what the tax implication was. Your problem wasn't the mistake you made in the H & R Block software; the problem was making the transfer from a traditional IRA to a Roth in this manner over this time frame. If you did get this advice from someone, it's malpractice at it's worst. I'm sorry, but this makes me upset, and frankly we can't deal with something like this in a simple discussion forum designed to answer questions and point people in the right direction. To make matters worse, you're in Massachusetts where there's plenty of advice to go around. I'm a retired CPA and Personal Financial Specialist on the Cape and if you need some assistance in finding a reliable CPA in your geographical area, I'm sure I can assist you. I started my career with Coopers & Lybrand, now PriceWaterhouseCoopers and left as an Audit Manager in 1977 to start my own Firm here on the Cape, which I did and retired "early" although our profession has one of the highest divorce & mortality rates of any profession except fisherman, I'm still alive, but not practicing.So let me know if I can assist you further and I'll try and get you some hands on assistance. If you want to discuss these matters further with me, it would probably be beneficial for you to request a phone consultation which I would be happy to accommodate.Steve G.