Accidental Rollover from Pretax 401k to Roth 401k

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Russ15
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Joined: Thu Jun 20, 2019 4:03 pm

Accidental Rollover from Pretax 401k to Roth 401k

Post by Russ15 » Thu Jun 20, 2019 4:10 pm

Well looks like I botched a rollover. I was trying to move pre tax 401k funds from a former employer into my current employers pre tax 401k with Vanguard, but the rollover was placed in my roth 401k with my current employer.

What are the tax implications for this?

I called Vanguard and they said there is nothing they can do.

When I completed the paperwork for the rollover with Voya, I specified the correct account at Vanguard but it looks like the form Vanguard wanted me to sign had the wrong account on it and I missed it. Thanks in advance.

fabdog
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Location: Williamsburg VA

Re: Accidental Rollover from Pretax 401k to Roth 401k

Post by fabdog » Thu Jun 20, 2019 4:49 pm

I would push on Vanguard a little more to see if they can help you correct this... you specified the correct account but then a different form they gave you was incorrect and you signed it? Ask fora supervisor or the retirement specialists and see if they can't untangle. Had a similar Issue at Schwab and at first they said no help but when I went over all the paperwork with them it got addressed

If it can't be fixed, the rollover will be taxable to you as ordinary income.

Mike

megabad
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Re: Accidental Rollover from Pretax 401k to Roth 401k

Post by megabad » Thu Jun 20, 2019 4:50 pm

Russ15 wrote:
Thu Jun 20, 2019 4:10 pm
Well looks like I botched a rollover. I was trying to move pre tax 401k funds from a former employer into my current employers pre tax 401k with Vanguard, but the rollover was placed in my roth 401k with my current employer.

What are the tax implications for this?

I called Vanguard and they said there is nothing they can do.

When I completed the paperwork for the rollover with Voya, I specified the correct account at Vanguard but it looks like the form Vanguard wanted me to sign had the wrong account on it and I missed it. Thanks in advance.
What you are describing is not possible. So it either needs to be corrected by the 401k provider, or you may be mixing up the wording a little. Did you intend to do a conversion? I would review all forms that you filled out and reconvene with Vanguard as there seems to be some miscommunication or misunderstanding here.

Topic Author
Russ15
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Joined: Thu Jun 20, 2019 4:03 pm

Re: Accidental Rollover from Pretax 401k to Roth 401k

Post by Russ15 » Thu Jun 20, 2019 4:57 pm

The form situation was a bit odd. Voya requested rollover paperwork asking what account the funds would be deposited to. I put the correct Vanguard account on this paperwork.

Once Vanguard received the check, they sent a message saying to complete the rollover-in form. At this point I logged in and checked my messages, but apparently this took me to the roth 401k account and I signed the paperwork. Everything was digitally completed.

Nowhere on the form did I see an account number or else I would have caught it right then. I imagined the only account Vanguard would accept for this rollover was the account I specified on the Voya paperwork.

All that being said I plan on calling up Vanguard later today and trying to get things rectified. Feeling pretty sick over things at the moment..

Topic Author
Russ15
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Re: Accidental Rollover from Pretax 401k to Roth 401k

Post by Russ15 » Thu Jun 20, 2019 4:58 pm

megabad wrote:
Thu Jun 20, 2019 4:50 pm
Russ15 wrote:
Thu Jun 20, 2019 4:10 pm
Well looks like I botched a rollover. I was trying to move pre tax 401k funds from a former employer into my current employers pre tax 401k with Vanguard, but the rollover was placed in my roth 401k with my current employer.

What are the tax implications for this?

I called Vanguard and they said there is nothing they can do.

When I completed the paperwork for the rollover with Voya, I specified the correct account at Vanguard but it looks like the form Vanguard wanted me to sign had the wrong account on it and I missed it. Thanks in advance.
What you are describing is not possible. So it either needs to be corrected by the 401k provider, or you may be mixing up the wording a little. Did you intend to do a conversion? I would review all forms that you filled out and reconvene with Vanguard as there seems to be some miscommunication or misunderstanding here.
I definitely was not trying to do a roth conversion in this instance. I was trying to put pretax funds into another pretax account.

megabad
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Joined: Fri Jun 01, 2018 4:00 pm

Re: Accidental Rollover from Pretax 401k to Roth 401k

Post by megabad » Thu Jun 20, 2019 5:07 pm

Russ15 wrote:
Thu Jun 20, 2019 4:58 pm
megabad wrote:
Thu Jun 20, 2019 4:50 pm
What you are describing is not possible. So it either needs to be corrected by the 401k provider, or you may be mixing up the wording a little. Did you intend to do a conversion? I would review all forms that you filled out and reconvene with Vanguard as there seems to be some miscommunication or misunderstanding here.
I definitely was not trying to do a roth conversion in this instance. I was trying to put pretax funds into another pretax account.
If your plan does not allow in plan roth conversions, it seems to me that what happened is not possible. As such, I would think your 401k provider must fix. If you filled the Voya forms out correctly, i would use this as supporting documentation as necessary. I would also recommend working quickly to fix this.

Topic Author
Russ15
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Joined: Thu Jun 20, 2019 4:03 pm

Re: Accidental Rollover from Pretax 401k to Roth 401k

Post by Russ15 » Thu Jun 20, 2019 5:10 pm

megabad wrote:
Thu Jun 20, 2019 5:07 pm
Russ15 wrote:
Thu Jun 20, 2019 4:58 pm
megabad wrote:
Thu Jun 20, 2019 4:50 pm
What you are describing is not possible. So it either needs to be corrected by the 401k provider, or you may be mixing up the wording a little. Did you intend to do a conversion? I would review all forms that you filled out and reconvene with Vanguard as there seems to be some miscommunication or misunderstanding here.
I definitely was not trying to do a roth conversion in this instance. I was trying to put pretax funds into another pretax account.
If your plan does not allow in plan roth conversions, it seems to me that what happened is not possible. As such, I would think your 401k provider must fix. If you filled the Voya forms out correctly, i would use this as supporting documentation as necessary. I would also recommend working quickly to fix this.
I was very surprised when the funds showed up in the wrong account, I too would not have thought this rollover would be completed rolling it into the roth. I plan to give them a call within the hour.

02nz
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Re: Accidental Rollover from Pretax 401k to Roth 401k

Post by 02nz » Thu Jun 20, 2019 5:26 pm

Sorry to hear about this. I had a somewhat similar situation (detailed here: viewtopic.php?t=261539), in which an incoming rollover from a pre-tax 401k equivalent (TSP) was incorrectly credited by Vanguard to my taxable account, instead of my rollover IRA. In my case, though, the paperwork was unambiguous - the screw-up was very clearly on Vanguard's part.

My advice is 1) to identify any paperwork (including the check itself) that shows that the intended destination was your traditional, not Roth, 401k; and 2) to ask to speak with Vanguard's resolution team, which is the part of the company that ultimately helped resolve my issue.

Good luck.

RetiredAL
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Re: Accidental Rollover from Pretax 401k to Roth 401k

Post by RetiredAL » Thu Jun 20, 2019 5:51 pm

A similar thing occurred with my wife when moving from a retirement account to what was supposed to be her IRA at Schwab but ended up in her Roth instead. The account numbers were very similar, with just two transposed digits. The dollar amount was only $4000, not an earth shattering amount.

In our case, Schwab corrected it as a posting error with one phone call. If they had not, it would not have been too rough on us, as it was going to be converted to a Roth later that same year. The tax records relating to the initial move showed it as a roll-over.

So do push on VG to correct as an error. And do so quickly, as that gives credence to it being a error.

Topic Author
Russ15
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Re: Accidental Rollover from Pretax 401k to Roth 401k

Post by Russ15 » Fri Jun 21, 2019 1:48 pm

Thanks everyone for the feedback. Full disclosure this was my wife's account and I was assisting her in the process of the rollover.

We spoke with Vanguard and they opened a case to switch the funds. Following the instructions they provided, the default account for the rollover was set for the wrong account so they admitted this was a less than ideal setup on their part as well.

Good news is the account the money did roll into is not a roth account afterall! My wife had explained to me the contributions were after tax and she thought it was a roth setup however the structure is set up as an after-tax account (contributions are after tax, growth is taxed). The rep from Vanguard said this is not a taxable event. While the funds landing here in my mind is still not ideal, it wouldn't be a huge blow like I thought previously.

Bottom line is double and triple check paperwork, and call multiple times until you get someone who can really push for you if you detect an error in the process. The first call, they said there was nothing they could do, second call they opened a case to try to get it resolved and admitted Vanguard made it confusing on our end of things.

Alan S.
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Re: Accidental Rollover from Pretax 401k to Roth 401k

Post by Alan S. » Fri Jun 21, 2019 3:43 pm

Russ15 wrote:
Fri Jun 21, 2019 1:48 pm
Thanks everyone for the feedback. Full disclosure this was my wife's account and I was assisting her in the process of the rollover.

We spoke with Vanguard and they opened a case to switch the funds. Following the instructions they provided, the default account for the rollover was set for the wrong account so they admitted this was a less than ideal setup on their part as well.

Good news is the account the money did roll into is not a roth account afterall! My wife had explained to me the contributions were after tax and she thought it was a roth setup however the structure is set up as an after-tax account (contributions are after tax, growth is taxed). The rep from Vanguard said this is not a taxable event. While the funds landing here in my mind is still not ideal, it wouldn't be a huge blow like I thought previously.

Bottom line is double and triple check paperwork, and call multiple times until you get someone who can really push for you if you detect an error in the process. The first call, they said there was nothing they could do, second call they opened a case to try to get it resolved and admitted Vanguard made it confusing on our end of things.
Doesn't sound right. Her funds ended up in a traditional IRA (aka rollover IRA), but included after tax amounts? Normally, a non Roth 401k will be funded with pre tax contributions plus possibly additional after tax contributions. If she had after tax non Roth contributions in her Voya plan, she should have done a split rollover (per Notice 2014-54) with the after tax money going to a Roth IRA and the rest to a rollover TIRA. No current tax due, but the Roth IRA would eventually be tax free. If after tax money went into as TIRA, Form 8606 will have to be filed and she will be subject to that Form and pro rating in the future. While there is a possible solution to that, the current transaction should be corrected if VG made an error, but at this point it is not clear exactly what was being rolled over and whether the VG target accounts were even correct.

Can you clarify further?

Topic Author
Russ15
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Joined: Thu Jun 20, 2019 4:03 pm

Re: Accidental Rollover from Pretax 401k to Roth 401k

Post by Russ15 » Fri Jun 21, 2019 3:47 pm

Alan S. wrote:
Fri Jun 21, 2019 3:43 pm
Russ15 wrote:
Fri Jun 21, 2019 1:48 pm
Thanks everyone for the feedback. Full disclosure this was my wife's account and I was assisting her in the process of the rollover.

We spoke with Vanguard and they opened a case to switch the funds. Following the instructions they provided, the default account for the rollover was set for the wrong account so they admitted this was a less than ideal setup on their part as well.

Good news is the account the money did roll into is not a roth account afterall! My wife had explained to me the contributions were after tax and she thought it was a roth setup however the structure is set up as an after-tax account (contributions are after tax, growth is taxed). The rep from Vanguard said this is not a taxable event. While the funds landing here in my mind is still not ideal, it wouldn't be a huge blow like I thought previously.

Bottom line is double and triple check paperwork, and call multiple times until you get someone who can really push for you if you detect an error in the process. The first call, they said there was nothing they could do, second call they opened a case to try to get it resolved and admitted Vanguard made it confusing on our end of things.
Doesn't sound right. Her funds ended up in a traditional IRA (aka rollover IRA), but included after tax amounts? Normally, a non Roth 401k will be funded with pre tax contributions plus possibly additional after tax contributions. If she had after tax non Roth contributions in her Voya plan, she should have done a split rollover (per Notice 2014-54) with the after tax money going to a Roth IRA and the rest to a rollover TIRA. No current tax due, but the Roth IRA would eventually be tax free. If after tax money went into as TIRA, Form 8606 will have to be filed and she will be subject to that Form and pro rating in the future. While there is a possible solution to that, the current transaction should be corrected if VG made an error, but at this point it is not clear exactly what was being rolled over and whether the VG target accounts were even correct.

Can you clarify further?
The voya account was setup as a 401k) only including pre tax contributions. The account it got accidentally placed in at Vanguard is apparently an after tax retirement account where the contributions she makes have already been taxed but the gains are taxable. The account we wanted to get it into at Vanguard was a standard 401k (pretax contributions).

Alan S.
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Location: Prescott, AZ

Re: Accidental Rollover from Pretax 401k to Roth 401k

Post by Alan S. » Sat Jun 22, 2019 2:05 pm

What is an after tax retirement account? This is not IRS terminology for account types.

Both 401k after tax and pre tax amounts can be transferred into a current 401k account, but the transferring 401k plan must provide documentation to the receiving 401k if any amounts are after tax. You have indicated that her old 401k was 100% pre tax with no after tax amounts. Terminology may be an issue here. Reference to pre tax vs after tax refers to whether taxes were paid on the original contributions and her original contributions were pre tax. Transferring these to the current plan does not change this status.

There must be some confusion in the communications here as to the VG accounts.

Topic Author
Russ15
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Joined: Thu Jun 20, 2019 4:03 pm

Re: Accidental Rollover from Pretax 401k to Roth 401k

Post by Russ15 » Sun Jun 23, 2019 5:45 pm

Here's some info on the plan. This is a Kaiser plan, called Supplemental Savings and Retirement Plan (Plan B):

Contributions: After-tax dollars
Income limits: None
Contributions subject to tax at distribution: No
Earnings subject to tax at distribution: Yes
Tax penalty on distributions before age 59½: 10% federal penalty tax on earnings but not contributions
Maximum annual contributions: Not subject to annual IRS personal contribution limit. However, contributions are
subject to the annual IRS total defined contribution plan limit ($52,000 or $57,500 if you are 50 or older)
Required distributions (i.e., age 70½ distribution): Yes, generally required by April 1 in the year after you turn age 70½ if you are
no longer employed by Kaiser.

Other details: employer matches up to 5%, employee can contribute a maximum of 10%.

This is directly off a pdf I found online regarding the plan details from 2014.. that seems to be the most current documentation I could find online.

I am not sure what the correct IRS terminology would be for this type of account.

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