Can Vanguard roll a pention plan to Roth IRA directly?

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zrzhu111
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Can Vanguard roll a pention plan to Roth IRA directly?

Post by zrzhu111 » Mon Mar 20, 2017 2:22 pm

Just talked to a rep from Vanguard. I was told that I need to roll over my pention plan to a Tradtional IRA first then convert the TIRA to Roth IRA. Just want to see if anyone did the conversion with Vanguard and confirm if the rep gave me the correct info. Thanks.

Silk McCue
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Re: Can Vanguard roll a pention plan to Roth IRA directly?

Post by Silk McCue » Mon Mar 20, 2017 2:49 pm

I've never done that scenario but would suggest the following unless someone provides a concrete example at Vanguard contrary to what you were told. Call Vanguard back. You will get someone different this time. Ask them the same question you did before. If they give you the same answer just honestly ask, "Why is this". You will then know. Regardless, it doesn't really matter as once the transfer lands in the tIRA you will be able to convert virtually immediately. Don't let the two step tango throw you if that's what is takes.

retiredjg
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Re: Can Vanguard roll a pention plan to Roth IRA directly?

Post by retiredjg » Mon Mar 20, 2017 3:06 pm

As I understand it, it used to be true that you could not transfer/roll a 401k directly to Roth. It had to go through tIRA first. So it is hard to know if there is a different rule for a pension plan or if this rep just doesn't know the rules have changed.

You are aware that taxes will be due on the entire amount? Unless the amount is small, it is usually not a good idea to move that money to Roth IRA.

zrzhu111
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Re: Can Vanguard roll a pention plan to Roth IRA directly?

Post by zrzhu111 » Mon Mar 20, 2017 3:11 pm

retiredjg wrote:As I understand it, it used to be true that you could not transfer/roll a 401k directly to Roth. It had to go through tIRA first. So it is hard to know if there is a different rule for a pension plan or if this rep just doesn't know the rules have changed.

You are aware that taxes will be due on the entire amount? Unless the amount is small, it is usually not a good idea to move that money to Roth IRA.


Yes, I understand the tax part. Thanks for reminding. It's a samll balance.

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whaleknives
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Re: Can Vanguard roll a pention plan to Roth IRA directly?

Post by whaleknives » Mon Mar 20, 2017 5:35 pm

This suggests you could go directly from a pre-tax pension (qualified plan) to a Roth 401(k), if you want to treat it all as income this year:
https://www.irs.gov/pub/irs-tege/rollover_chart.pdf and
https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions.
These pages are current as of 08-Feb-2017.

I should have checked Vanguard first. Their online rollover instructions say:

    "Looking to convert your employer-sponsored plan account to a Roth IRA?
    Traditional employer-sponsored plan accounts can be converted directly to a Roth IRA.
    "

    Convert to a Roth IRA
    The Roth's benefits come with trade-offs that are important to consider. We recommend that you consult a tax or financial advisor about your individual situation.

    Converting your traditional employer-sponsored retirement plan account to a Roth IRA may give you tax advantages. You can make tax-free withdrawals (as long as you meet IRS holding requirements) and get freedom from the IRS's required minimum distributions (RMDs). However, you have to pay income taxes on the money you convert from a traditional employer-sponsored retirement plan account, and the conversion amount can bump you into a higher tax bracket.

    Converting may be beneficial if you:
    Can pay the conversion taxes without using retirement assets.
    Expect your tax rate to be higher in the future.
    Plan to keep the money invested for at least five years.
    It may not be beneficial if you:
    Anticipate your tax rate will be lower in the future.
    Expect to withdraw the money within five years.

    If you have any questions, contact a rollover specialist at 800-447-9427, Monday through Friday, 8 a.m. to 10 p.m., Eastern time.

    Do you understand the tax consequences associated with a conversion and wish to convert your employer-sponsored retirement plan assets to a Roth IRA?"
"I'm an indexer. I own the market. And I'm happy." (John Bogle, "BusinessWeek", 8/17/07) ☕ Maritime signal flag W - Whiskey: "I require medical assistance."

zrzhu111
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Re: Can Vanguard roll a pention plan to Roth IRA directly?

Post by zrzhu111 » Mon Mar 20, 2017 6:00 pm

whaleknives wrote:This suggests you could go directly from a pre-tax pension (qualified plan) to a Roth 401(k), if you want to treat it all as income this year:
https://www.irs.gov/pub/irs-tege/rollover_chart.pdf and
https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions.
These pages are current as of 08-Feb-2017.

I should have checked Vanguard first. Their online rollover instructions say:

    "Looking to convert your employer-sponsored plan account to a Roth IRA?
    Traditional employer-sponsored plan accounts can be converted directly to a Roth IRA.
    "

    Convert to a Roth IRA
    The Roth's benefits come with trade-offs that are important to consider. We recommend that you consult a tax or financial advisor about your individual situation.

    Converting your traditional employer-sponsored retirement plan account to a Roth IRA may give you tax advantages. You can make tax-free withdrawals (as long as you meet IRS holding requirements) and get freedom from the IRS's required minimum distributions (RMDs). However, you have to pay income taxes on the money you convert from a traditional employer-sponsored retirement plan account, and the conversion amount can bump you into a higher tax bracket.

    Converting may be beneficial if you:
    Can pay the conversion taxes without using retirement assets.
    Expect your tax rate to be higher in the future.
    Plan to keep the money invested for at least five years.
    It may not be beneficial if you:
    Anticipate your tax rate will be lower in the future.
    Expect to withdraw the money within five years.

    If you have any questions, contact a rollover specialist at 800-447-9427, Monday through Friday, 8 a.m. to 10 p.m., Eastern time.

    Do you understand the tax consequences associated with a conversion and wish to convert your employer-sponsored retirement plan assets to a Roth IRA?"


Thanks. I guess Vanguard can do it directly then based on the info you found. Can you post the link of the above info, so I can share with the rep when I talk to them again. For some reason, I couldn't find the same info on vanguard.

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whaleknives
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Re: Can Vanguard roll a pention plan to Roth IRA directly?

Post by whaleknives » Mon Mar 20, 2017 6:19 pm

zrzhu111 wrote: . . . Thanks. I guess Vanguard can do it directly then based on the info you found. Can you post the link of the above info, so I can share with the rep when I talk to them again. For some reason, I couldn't find the same info on vanguard.

Try this: https://personal.vanguard.com/us/investnow/si/oaeviastart.jsp#counter=2
which tells you that "Traditional employer-sponsored plan accounts can be converted directly to a Roth IRA."
Then click on the <Convert to a Roth IRA»> link for the rest.

It's also here: https://personal.vanguard.com/us/literature under "Roll Over Assets".
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Alan S.
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Re: Can Vanguard roll a pention plan to Roth IRA directly?

Post by Alan S. » Mon Mar 20, 2017 7:00 pm

Generally speaking, if you have basis from after tax contributions in either your TIRA or your pension plan, you should convert from the plan with the highest % basis. This will reduce the taxable amount of the rollover.

For tax reporting:
1) Rollover directly from employer plan to Roth IRA - report directly on lines 16a and 16b of Form 1040. No forms needed.
2) Roll to TIRA first, then convert - you report the direct rollover to TIRA as above, except 16b will not have a taxable amount. In addition, you report the IRA conversion on Form 8606 and lines 15a and 15b. Taxable amounts will go on 15b.

Either way, you can recharacterize the Roth rollover if you want to.

OnTrack2020
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Re: Can Vanguard roll a pention plan to Roth IRA directly?

Post by OnTrack2020 » Mon Mar 20, 2017 8:41 pm

zrzhu111 wrote:Just talked to a rep from Vanguard. I was told that I need to roll over my pention plan to a Tradtional IRA first then convert the TIRA to Roth IRA. Just want to see if anyone did the conversion with Vanguard and confirm if the rep gave me the correct info. Thanks.


My husband had a pension plan which was frozen several years ago, and the plan was then terminated this past year.

Part of the pension funds were after-tax, and part of the funds were pre-tax.

In December:

The portion of the pension that was after-tax funds we were able to rollover to Vanguard into a Roth IRA.

The portion of the pension that was pre-tax funds we were able to rollover to Vanguard into a Traditional IRA. If we had rolled these pre-tax pension funds directly into a Roth IRA, we would have been hit with a substantial tax bill because it would have been considered income.

https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

If you note on the chart, where it shows qualified plan (pre-tax) rolling into a Roth, note the 3 next to it. It will be reported as income.

zrzhu111
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Re: Can Vanguard roll a pention plan to Roth IRA directly?

Post by zrzhu111 » Tue Mar 21, 2017 9:56 am

Alan S. wrote:Generally speaking, if you have basis from after tax contributions in either your TIRA or your pension plan, you should convert from the plan with the highest % basis. This will reduce the taxable amount of the rollover.

For tax reporting:
1) Rollover directly from employer plan to Roth IRA - report directly on lines 16a and 16b of Form 1040. No forms needed.
2) Roll to TIRA first, then convert - you report the direct rollover to TIRA as above, except 16b will not have a taxable amount. In addition, you report the IRA conversion on Form 8606 and lines 15a and 15b. Taxable amounts will go on 15b.

Either way, you can recharacterize the Roth rollover if you want to.


Thanks. For tax reporting, I would defintely love the direct rollover which is simpler.

zrzhu111
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Re: Can Vanguard roll a pention plan to Roth IRA directly?

Post by zrzhu111 » Tue Mar 21, 2017 10:18 am

whaleknives wrote:
zrzhu111 wrote: . . . Thanks. I guess Vanguard can do it directly then based on the info you found. Can you post the link of the above info, so I can share with the rep when I talk to them again. For some reason, I couldn't find the same info on vanguard.

Try this: https://personal.vanguard.com/us/investnow/si/oaeviastart.jsp#counter=2
which tells you that "Traditional employer-sponsored plan accounts can be converted directly to a Roth IRA."
Then click on the <Convert to a Roth IRA»> link for the rest.

It's also here: https://personal.vanguard.com/us/literature under "Roll Over Assets".


Thanks. After so many tries, I finally saw it. For some reason, it asks me to open a new account instead of pointting to my existing RIRA account. I've emailed the customer service. Let's see what they come back with.

Screenshot from Vanguard site: http://imgur.com/a/vtUGG

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whaleknives
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Re: Can Vanguard roll a pention plan to Roth IRA directly?

Post by whaleknives » Tue Mar 21, 2017 2:39 pm

zrzhu111 wrote: . . . For some reason, it asks me to open a new account instead of pointting to my existing RIRA account. I've emailed the customer service. Let's see what they come back with. . .

Were you logged in before clicking the links? That might have made them behave better.
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zrzhu111
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Re: Can Vanguard roll a pention plan to Roth IRA directly?

Post by zrzhu111 » Fri Mar 24, 2017 8:53 pm

Just got a response from Vanguard, it seems Vanguard really want people to open a TIRA first then convert to RIRA. The following is what I got:

My name is xxx xxx, and I work on a team here at Vanguard that
specializes in rollovers.

You would first want to roll that plan into a Rollover or Traditional IRA,
and then do a Roth conversion. This is the preferred method for IRS
purposes.


I would really want to convert directly to RIRA which is much easier for tax reporting. Since I do have RIRA with Capitalone Investing and Scottrade, I'll check with them to see if any of them can do direct conversion.

Thanks for all your help.

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whaleknives
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Re: Can Vanguard roll a pention plan to Roth IRA directly?

Post by whaleknives » Fri Mar 24, 2017 11:24 pm

:oops: If Vanguard is going to refuse, they should update their website.
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Re: Can Vanguard roll a pention plan to Roth IRA directly?

Post by retiredjg » Sat Mar 25, 2017 6:06 am

zrzhu111 wrote:You would first want to roll that plan into a Rollover or Traditional IRA, and then do a Roth conversion. This is the preferred method for IRS purposes.

I don't get it. If the IRS gives you two pathways, why would the IRS have a preference?

Besides, there is a potential problem with this approach. If you have basis (already taxed money) in any of your IRAs, that approach requires you to pro-rate all your IRAs in the conversion.

If Vanguard is your preference, I'd push back. Unless there is a difference in how a pension is handled as compared to a 401k plan, what they are telling you appears to be wrong.

zrzhu111
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Re: Can Vanguard roll a pention plan to Roth IRA directly?

Post by zrzhu111 » Sat Mar 25, 2017 11:59 am

retiredjg wrote:
zrzhu111 wrote:You would first want to roll that plan into a Rollover or Traditional IRA, and then do a Roth conversion. This is the preferred method for IRS purposes.

I don't get it. If the IRS gives you two pathways, why would the IRS have a preference?

Besides, there is a potential problem with this approach. If you have basis (already taxed money) in any of your IRAs, that approach requires you to pro-rate all your IRAs in the conversion.

If Vanguard is your preference, I'd push back. Unless there is a difference in how a pension is handled as compared to a 401k plan, what they are telling you appears to be wrong.


I talked to different reps from Vanguard, one is from the call center and the other one is from the secure message center. They basically told me the same thing. Probably it's easier for Vanguard to take rollover into TIRA first and then convert it to RIRA.

I don't have any post-tax money in the pension plan in which the prior employer contributed the whole thing. It won't make any different to me, but I would prefer to roll it over to RIRA directly.

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Re: Can Vanguard roll a pention plan to Roth IRA directly?

Post by retiredjg » Sat Mar 25, 2017 12:15 pm

It isn't post-tax money in the pension that messes things up. It is non-deductible contributions to one of those IRAs that will mess things up.

If you sent Vanguard a check and said it was a rollover to go into your Roth IRA, how the heck would they know if it came from Roth 401k or from a pre-tax pension? They wouldn't. So why should they try to get you to do it one way instead of the other?

The most likely reason (seems to me) is that that department has a misunderstanding about what the law allows or requires. Maybe somebody didn't update the resource guide and training manual when the law changed.

I also think the wording of the email is interesting. It does not seem they actually refused to do what you want, just encouraging you to do the other way.

I would venture to say that Vanguard receives pre-tax money every day that is going into Roth IRA. I just don't get the problem with this one.

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Earl Lemongrab
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Re: Can Vanguard roll a pention plan to Roth IRA directly?

Post by Earl Lemongrab » Sat Mar 25, 2017 3:54 pm

In my opinion, people spend too much time calling up and getting permission to do things. I would open a Roth IRA, get the account information, have the pension plan cut a direct rollover check for that, then submit it to Vanguard with the proper form. Well, really I wouldn't send it to Vanguard at all, but one of my other custodians.
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whaleknives
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Re: Can Vanguard roll a pention plan to Roth IRA directly?

Post by whaleknives » Thu Mar 30, 2017 6:16 pm

whaleknives wrote::oops: If Vanguard is going to refuse, they should update their website.

I tried notifying Vanguard of the contradiction between website and customer rep info, but it didn't get any response:

    "Re: Roth IRA Roll Over

    Thank you for taking the time to contact us.

    We are unable to directly access third-party web links. Feel free to let us
    know of any feedback you have for us and we will be happy to forward this
    on. We thank you for your cooperation.

    Also, for the protection of our client information, we would happily
    address each client's inquiry specific to their situation. Please let us
    know how we can assist with your specific question related to Roth IRA
    rollovers.

    If you have additional questions, please call Vanguard Voyager Select
    Services at 800-284-7245. You can reach us on business days from 8 a.m. to
    8 p.m., Eastern time.

    Sincerely,

    Registered Representative
    Vanguard Retail Investor Group"
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