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The short story is:

  • In the spring of 2016, we gave our broker a check to max out our Roth IRA contributions for the tax year of 2015 (check was written and cashed by the broker before April 15 in 2016).
  • Broker didn't contribute the funds until June 2016, missing the tax deadline
  • Broker didn't tell inform us what happened
  • In Spring of 2017 (the next year), we gave the broker another maxed-out Roth IRA contribution with instructions to be used for the 2016 tax year. Broker used it for the 2017 tax year, but informed us it was for the 2016 tax year.
  • This pattern applying the maxed-out Roth IRA for the current year and informing us they applied it for the previous tax year continued every year.

This year (2019), we switched brokers because of other frustrations and the new broker found the mistake the old broker (and his assistant) made in 2016. The new broker, respectably, told us what happened.

The change in the Roth IRA maximum contribution from 5500 (in 2018) to 6000 (in 2019) also made it easier to catch what was happening. The old broker saying they contributed 6000 (actually $12,000 for the 2 Roth IRA accounts) for the tax year of 2018 was a flag.

We were considering making our 2019 maxed-out Roth IRA contribution right now (in the spring of 2019), but are unable to because of our past broker's mistake and perpetual cover-up.

Also, the dollar amount is for 2 Roth IRA accounts, so $11,000 total, that was not properly applied to the 2015 tax year.

Main Question:

What can we do about this?

What would you do?

Update

Thank you, everyone, for your help, we appreciate it!

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    Who is the custodian of your Roth IRA, your previous broker or the mutual fund company? If it is the broker who is the custodian, then you made your contributions in timely fashion. If it is the mutual fund company, then your broker screwed up badly. Do you get a piece of paper ((Form 5438?) in May or so every year room your IRA custodian (that you probably throw away without readng) tell ng you how much you contributed for the previous year? – Dilip Sarwate Mar 30 at 3:31
  • @DilipSarwate: But even if the contributions were made during the interval when they could be applied to either year, the tax return made a designation – Ben Voigt Mar 30 at 4:06
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    @BenVoigt If the brokerage is the IRA custodian, and the check was written payable to "Brokerage Fiducial Trust" which might be the official name of its IRA custodian, then the IRA contribution for 2015 was made in timely fashion and the only issue is the brokerage hanging on the money and not investing it as directed. If the check was written payable to the brokerage with instructions to send the money to the OP's Roth IRA in (say) Vanguard S&P 500 Index Fund whose custodian is Vanguard Fiduciary Trust Company and the brokerage sent the money to Vanguard in Summer 2016 (continued) – Dilip Sarwate Mar 30 at 13:49
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    (continuation) as a 2016 contribution, then there is a serious problem with the brokerage. Also, as far as tax returns are concerned, are Roth IRA contributions reported anywhere on a tax return other than a Form 5438? from the IRA custodian telling the taxpayer about IRA contribution fir the previous year? (Never having been eligible to make a Roth IRA contribution, I don't know). – Dilip Sarwate Mar 30 at 13:53
  • @DilipSarwate: I checked my return and it seems the Roth IRA contribution amount only appears on worksheets, not on any form I file. So you are correct that the problematic filing would be the Form 5498 the trustee (which may differ from the custodian) sent the IRS, which the taxpayer didn't countersign. – Ben Voigt Mar 30 at 15:26
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What would you do?

I would consult a tax expert now. That first year was filed in April 2016, which means that in April 2019 the window closes to make any changes.

Take them your emails or written instructions you used to tell the broker what to do. Take them bank statements, cancelled checks, and the tax forms.

The question is can you use a series of 1040X forms to correct the mistakes. You are not looking for somebody that is new to working on taxes, you need to talk to somebody who handles tax issues all year round.

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  • What does 1040X have to do with it? Roth IRA contributions arent reported on your tax return at all. – Matt Mar 30 at 20:49
  • @Matt: But they are reported to the IRS, so some sort of correction needs to be filed (for which the deadline may or may not be the same as the 1040X deadline) – Ben Voigt Mar 31 at 3:02
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    @BenVoigt Yes, there needs to be a correction. But it won't be on a 1040X. – Matt Mar 31 at 3:10
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The obvious step is to sue the old broker.

By keeping your money out of the market during a huge bull market, they've directly caused you significant lost growth. Grab your statements from the brokerage account showing when the funds arrived, and from your source bank showing when control passed to the broker, estimate those losses, get a demand letter sent to the old brokerage, and if they don't make your account whole, sue.

And if they try to pay you outside the IRA account where the growth should have occurred, calculate the diminishment in value and add that to the demand.

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  • I think this answer addresses a different question. OP is concerned about which tax year the contributions are applied to, not whether they were invested properly. – prl Mar 30 at 3:55
  • @prl: Presumably OP took the tax documents prepared by the broker and sent them to the IRS, having signed an affirmation that they were correct. Trying to do anything about the tax situation is going to be a horrendous waste of time. All they can do is try to make the party at fault (the old broker) eat the losses. And I certainly did answer the question, which was "What would you do (in this situation)?" – Ben Voigt Mar 30 at 4:00
  • @prl they asked what they can do about this. and this person answered it. Sue is using the courts to compel repayment for losses caused by incompetence, and damages are to make it clear that this is unacceptable behavior. This is the correct venue where such nuances realized later would be hard for someone to just agree to compensate you for, the court is the correct arbiter. – CQM Mar 30 at 7:06

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