IRA ADVICE – ED SLOTTIn a just released private letter ruling (PLR), a taxpayer was given an extension of time to complete a rollover of funds to his IRA. He was given bad advice by his CPA.

“Tom” transferred some funds from an existing IRA to a brand new IRA. At tax time, his CPA of 20 years thought the transfer was a contribution. He advised Tom that he could not make a “new” IRA contribution because he was participating in his employer plan at work. And, if the contribution remained in his IRA, it would be considered an excess contribution, subject to a penalty of 6% per year until it was removed. Tom removed the funds from the IRA and placed them in a non-IRA account.

Two years later, Tom got a love letter from IRS wondering where the taxes were on his IRA distribution. The problem was the incorrect advice from Tom’s CPA. We don’t know why the CPA thought the transfer was a contribution to the IRA. But then the CPA made the rookie mistake. He told Tom he was ineligible to make a contribution to his IRA because he was participating in an employer plan. That is where he made his big mistake. READ MORE HERE

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