Roth Reinvesting Error

Today TaxMama hears from Sylvia in Texas with a problem. “In 1998 my husband converted his IRA holdings to a Roth account. The brokerage company continues to place dividends in a MM account saying they have no record of his wanting the dividends reinvested and it’s too late now. Unfortunately, our records were on thermal paper (I once wrote you to warn people about thermal paper when I discovered ours had faded) and we have no record of request. The brokerage firm has changed hands since we originally opened the account and says its too late to reinvest the dividends. Is it? We’re paying tax on the MM interest as well as the dividends!”

Dear Sylvia,

Yes, I remember the warning. And it’s totally valid. Anytime anyone gets any receipt or important document on thermal paper – IMMEDIATELY copy it on to regular paper. It does fade.

1998 is a long time ago. It’s clearly too late to do anything to change the past that far back, with respect to the reinvested dividends.

However, you can change the future. Instruct the brokerage to reinvest the dividends from now on. Give them the instructions in writing.

I cannot understand why it would be too late to reinvest them? If they refuse, or ignore you, simply open a Roth account somewhere else and transfer all your holdings to them, with written instructions to reinvest your dividends. Heck, I’d do that anyway, since your current brokerage didn’t make any effort to help you now.

I also don’t understand how they can take Roth income and arbitrarily deposit them into a non-Roth money market account. That makes absolutely no sense to me!

If you have nothing better to do with your time, and if you have documentation about your attempts to get the brokerage to fix the problem since…consider taking them to Small Claims Court to recover the taxes you’ve paid as a result of their error and their refusal to fix it.

The limit is $10,000 http://www.consumeraffairs.com/consumerism/small_tx.html It’s possible the court doesn’t have jurisdiction over these matters, but it costs very little to find out!
And remember, you can find answers to all kinds of questions about taxable errors and other tax issues, free. Where? Where else? At TaxMama.com

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