Roth Conversion Error

Submitted by Stephen Madeyski on Fri, 2020-12-18 20:20

Hello,

Individual did an in-kind Roth Conversion online in her Vanguard Traditional IRA to Vanguard Roth IRA. It appears that the individual entered 30,000 shares when she thought she was entering $30,000 to convert. Result was $348,000 conversion instead of the intended $30K conversion. Error was discovered 2 days later, before individual received her confirmation in the mail. Called Vanguard and they are saying error cannot be reversed, although they are going through their channels and will let individual know in 3-5 business days. Individual is adamant that it was a Vanguard website error, which Vanguard is disputing.

If Vanguard’s decision is that erroneous conversion number has to stand, what recourse does individual have with Vanguard and or the IRS? Is there anything individual can do to mitigate consequences with the IRS. Submitting a PLR is probably not worth the cost, even though if the erroneous conversion number stands, it will be devastating to her with the enormous tax bill that would possibly be due for 2020.

Appreciate your feedback in advance!

Stephen



Submitted by Alan - IRA critic on Fri, 2020-12-18 21:33

  • There are have been a few of these conversion disasters reported, but given the chance to review and confirm the transaction (basically a second look) before you submit the conversion, it’s rarely the custodian’s fault. If it were, the custodian could correct their error. VG is large enough to have dedicated staff to resolve such situations. They know what authority they have, and are careful not to divulge their authority limits to anyone. 
  • Otherwise, I am not aware of any template for relief.  Even if the taxpayer spent 20k on a PLR, it could well be a waste of time and expense.  As for paying the tax bill, an installment payment request might help spread the pain over a period of years.
  • For those reading this, it might be wise to transact large conversions by phone on recorded line. Custodian staff should carefully read back to you what you have requested, address withholding for conversions, etc,
  • Of course, this is a disaster now, but in 5 years it might look like a very lucky break. 

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