401(k) Rollover Gone Wrong – Roth 401(k) to Traditional IRA
I recently completed a 401k rollover from a previous employer’s plan into a traditional IRA I already held with a different custodian (Interactive Brokers). I initiated this shortly after ceasing employment with this company.
The 401k had both Roth AND pre-tax deposits. Vanguard (the 401k custodian), cut two checks and sent them straight to Interactive Brokers as a direct rollover – one check for the Roth component, and one for the pretax component.
I was under the impression that the Roth funds would go into a new Roth IRA account, and that the pretax funds would go into my existing traditional IRA. IB put them both in the traditional IRA, so now I have Roth funds in an IRA… I’m afraid these funds will be taxed down the road when I go to withdraw. Additionally, now all the earnings I make will also be taxed since they are not within a Roth account any more.
Is there anything I can do to make this transfer correct? My understanding is a Roth 401k rollover to a traditional IRA is not an allowable transaction, so I’m not sure how this happened. IB won’t really work with me, other than saying I can withdraw the Roth funds and then deposit them into a new Roth IRA, but I’m worried this would be a taxable event and create a large tax bill I won’t be able to pay.
For what it’s worth, I started this whole rollover process in early July.
Any advice would be much appreciated!
Permalink Submitted by Alan - IRA critic on Tue, 2017-08-15 19:20
First, I would call Vanguard and try to get copies of their checks. The distribution check from the Roth 401k account should have been payable to to “IB FBO mozze Roth IRA”. If so, then you have the evidence to force IB to transfer the earnings adjusted amount from your TIRA to your Roth IRA account. Did you open a Roth IRA account with IB before the rollover? You should have, but even if not you did not, IB cannot deposit a direct rollover to a Roth IRA in a TIRA. This is pretty much a tax disaster if you do not get it corrected, and time is of the essence. Have you asked IB to elevate the issue to supervision? It sounds like they are providing you with incompetent and unresponsive customer service, and there is no excuse for that.
Permalink Submitted by Ryan Mozzetti on Wed, 2017-08-16 01:38
Thank you for the response. I will get on this immediately.I do already have a record from Vanguard clearly showing one direct rollover as payable to “FBO mozze Pre-Tax Cash”, and the other rollover as “FBO mozze Roth Cash”. I don’t have copies of the checks, but I have a document showing the record of how the two checks went out, and how they were marked separately.I have talked with IB multiple times, but never asked to escalate. I will call and do that tomorrow. Also, I did not have the Roth open before the rollover, but I do have one open now ready to be funded if I can just get this corrected somehow. If I still have the issue with IB not cooperating I may post back to this forum for additional advice. Thank you so much!