Mistake: Roth 401k to Traditional IRA
I received my Roth 401k rollover check in the mail yesterday and accidentally deposited it into my traditional IRA. I called Vanguard and asked what I should do. They said the funds won’t even be available until 8/9, as they have a 7 day hold. What is the best way to correct this?
Permalink Submitted by Alan - IRA critic on Wed, 2021-08-04 12:51
This can be a nasty error to get corrected. It will depend on the full cooperation and understanding of Vanguard. Do you have a check stub or did you make a copy of the check that shows the payee? It should indicate Vanguard FBO of (your name) Roth IRA. And the amount should only include funds from your Roth 401k account. If you do not have this documentation, you will need something from the Roth 401k plan that clearly shows that this check constituted Roth 401k money. Providing this to Vanguard establishes where it should have gone, and your TIRA is NOT an eligible account to receive Roth 401k funds. What you need to happen is Vanguard then corrects the error by making an internal transfer to your Roth IRA of these funds. There is no distribution to you, so the funds need not be available. Call Vanguard customer service first to see if they want any other info, and there is no need to wait to 8/9 to get the process underway. The sooner it is caught the better, so it this had to happen better you caught it right away, then several months later. I have seen several of these situations posted here, so a firm as large as VG should have an established procedure already in place to correct it, given the documentation they need.
Permalink Submitted by Kerry Schepers on Wed, 2021-08-04 21:03
I’ve seen this mistake before too. VANGUARD can open a RotH IRA and then move from the Tradtional to the Roth. They can make “an exception” and same trade date.
Permalink Submitted by Gregory Mueller on Wed, 2023-03-15 00:05
I did this as well. However, I subsequently rolled the money out of the tIRA (along with other funds) into a solo 401k account. So now the account is empty. I did this back in Sep 2022 and discovered while doing taxes for our family.
Permalink Submitted by Alan - IRA critic on Wed, 2023-03-15 15:42
Taxpayers should be exceptionally careful to avoid rollovers into an unintended account. In some cases the receiving account is not an eligible destination (eg Roth account to non Roth account) and in other cases the receiving account is eligible but such a rollover will produce unintended tax consequences. Custodian cooperation in resolving these errors is inconsistent, depends on the type of error, depends on providing supporting documentation, and depends on the amount of time that has passed and what contribution reports (5498) have been issued by the custodian. If the custodian will not cooperate with the correction and reporting (1099R) that comes with the corrective procedure, the consequences can range from nothing to serious IRS penalties should the IRS react to the rules violation. Cases where a number of transfers or rollovers occurred after the failed rollover compounds the problem, and there is no clear template available to resolve some of these issues. Best recommendation: Be extremely careful to avoid the error in the first place.