No. of Recommendations: 0
Greetings, Bnutty, and welcome. You wrote:

<<Long story, helped my fiancee convert a traditional IRA to a Roth last year - or so we thought. Etrade sent some forms upon request from us. We signed the paperwork to open a Roth and convert from the traditional, and assumed the traditional IRA was being converted. As I started looking over taxes for this year - I noticed that her original $2K contribution investment was still in the old account even though a new Roth IRA account was set up. Apparently, we filled out the wrong form for conversion (that Etrade sent us, of course). So now her account is worth $6K and Etrade says if we want to convert to a Roth that we need to redo the form and obviously pay taxes on the $6K transaction next year. What recourse do we have? Etrade claims that the tax liability is our responsibility and that even though they understood the mistake we made originally - it is not their duty to call and tell us. Is their some responsibility I should be able to hold them to or is my only recourse to empty my three accounts I hold with them and move on? Additionally, my fiancee is now in school and has no income - so what tax consequences would she face with conversion if we had no other choice but to pay the conversion tax? With no income it seems that keeping the money in a traditional IRA is unwise. Foolish opinions allowed. >>

Nothing will be lost if you continue to argue with E*Trade, but the bottom line is you are responsible for ensuring the conversion request was submitted in good order. It was not. Accordingly, IMHO E*Trade is off the hook here.

You say the account is $6K and your intended has no income. That seems tailor made for a conversion this year as she wouldn't have much (if anything) to pay in income taxes as a result of that conversion. You could even convert part this year and spread the remainder over the next two years to keep the burden down if the taxes seem too high to handle. It's certainly worth consideration.

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