Have you ever moved money to the wrong account? If so, it may cost you to fix it. I have several accounts that I manage because I also manage my kids custodial accounts. With cash brokerage accounts, IRA accounts, and Roth accounts, it can start to look the same. What happens if you accidentally funded the wrong account? Depending on which account it is, it could be nothing or it could be something. I made a mistake and it cost me to reverse it. So, don’t fund the wrong account.

I wanted to add some money to my kids’ accounts specifically their Roth IRA. It wasn’t much that I was transferring to, just $100. I want to help them jump start on their retirement accounts early so by the time they are ready to retire, they will hopefully have a comfortable amount. Mistakenly, I transferred $100 from my bank account to my IRA account instead of their Roth IRA account.

What’s the problem you might ask? First, the $100 in my bank account is post-tax money. I’ve already paid taxes on it so it’s my money to spend. My IRA account is a pre-tax retirement account. I transferred post-tax money into a pre-tax account. Second, there’s a limit how much you can contribute to a retirement account. I already am doing the maximum contribution amount to my retirement account through my employer. If I go over that amount, I would have to get that fixed.

I contacted my broker and they said I would need to submit an excess contribution or recharacterization form to reverse this. You would think it would be as easy as removing the $100 and putting it in the right account. My first road block is that my kids’ accounts are not technically in my name. It is in their name but me as a custodian which means I could not recharacterize the $100 from my IRA to their Roth.

The only other option was to make a withdraw transaction. When you withdraw from a pre-tax account like an IRA before the age 59 1/2, there are some rules that will apply. One, you will have a 10% early withdraw penalty. Two, you will be taxed on the amount withdrew.

But wait, the original $100 I wanted to contribute has already been taxed. It was my money that I had in my bank account post-tax. Now I have to pay taxes on it again.

Luckily, the amount was that big. Yes, it was tough to hear the support agent unable to give me more options. When dealing with money whether it’s donating, moving, or sending, make sure it’s going to the right place. Don’t make the mistake I made. Don’t fund the wrong account. If you are interested in following my journey and their journey, follow them on Instagram and email subscribe to get alerts of latest posts or follow me on Facebook, Instagram, and Pinterest.