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  1. #1
    Join Date
    May 2008
    Posts
    1

    Default Employer Made ROTH IRA Deposits In Error

    We are located in Maryland

    For a period of 69 weeks my wife's former employer deposited $50 per week into her ROTH IRA account at T.Rowe Price and withheld after taxes $50 from a differen employee with a similar name for the same period.

    When this was finally discovered by her former employer back in August 2007 they contacted her in a threatening manner and said that she had to return the money. Since that money was in a ROTH IRA it was not like she could just liquidate it and send them a check.

    They sent two letters to her that both threatened legal action if she did not return the money. Our problem is there is no cut and dry way to return the money. Some of the contributions occured in 2006 which would requre her to ammend and refile her income taxes for 2005.

    In December 2007, we agreed to a repayment plan where we would make monthly payments to them over the course of 12 months to reimburse them for the contributions they made in error to her account.

    In January 2008, my wife found out that they had written a letter to T.Rowe saying that they were going to take legal action to take the money and T.Rowe had frozen her account and now she can not modify her investments.

    We have the money to pay them but we are worried about what else they may have done that will create more headaches in the future because we do not know what they have done nor have they provided any professional help to resolve this matter in a way that would not effect our taxes.

    Any help would be appreciated

  2. #2
    Join Date
    Sep 2005
    Location
    Behind a Desk
    Posts
    98,846

    Default Re: Employer Made ROTH IRA Deposits In Error

    Have the employer commit in writing to "unfreeze" the account and release your wife from any further claims upon its receipt of the money.

  3. #3
    Join Date
    Feb 2008
    Posts
    1,179

    Default Re: Employer Made ROTH IRA Deposits In Error

    I can't believe that she didn't notice the contribution going into her Roth that wasn't coming out of her paycheck for over a year! Just because the employer made a mistake doesn't mean that she should profit from it.

    Withdrawing money from a Roth is much easier than from a traditional IRA or 401k plan. It is my understanding that she could withdraw the contributions without having to touch the earnings. Honestly, she should return the earnings too.

    "Further, the IRS has deemed that Roth IRA distributions MUST be withdrawn in a specific order, and that order applies regardless of which Roth IRA is used to take that distribution. Roth distributions should be made in the following order:

    1. From non-taxable annual contributions to a Roth IRA (other than conversion amounts)
    2. From conversion contributions, on a first-in, first-out (FIFO) basis
    3. From earnings
    from http://www.fool.com/money/allaboutiras/allaboutiras07.htm"

    The only part that gets hit with income tax and the 10% early withdrawal penalty is the earnings part. If her earnings have been positive, she could leave those in the Roth IRA.

    I suggest she talk to T Rowe Price about an early withdrawal of just the contributions. That would only possibly affect the current year's tax return...and only if she had earnings that she withdrew.

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