Am I liable for an accountiuing mistake?

A few months ago I cashed out my IRA to pay off debt. I spoke with my broker several times before I did so. I had lost my job and had been struggling to pay bills. I received a letter a few days ago stating that there had been an error in my pay out. A contribution had been made to my account in error and they want me to repay it within 2 weeks ($7500) I do not have this money. I paid off debt. I also paid the 10% penalty and will pay taxes on this amount at the end of the year. What are my rights?

Asked on November 12, 2012 under Bankruptcy Law, Alabama

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 8 years ago | Contributor

If you were accidentally paid money to which you are not entitled, you have to repay it--an error does not give you the right to keep the money, any more than if you accidentally gave the pizza deliverer two $100 bills to pay for a $20 pizza instead of two $10 bills, he'd be allowed to keep that money.

However, you should then be entitled to recover the 10% penalty on the excess, and should get a credit for overpaying your taxes.

The fact that you have used the money already does not give you any rights to not repay it, either. If you do not repay, you can be sued for the money.


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