Non-Spouse Inherited 403B Rollover to Personal IRA
I accidentally rolled my TIAA CREF inherited pre-tax 403B from my deceased sister into my own personal Vanguard traditional IRA. I mistakenly listed my Vanguard personal traditional IRA account number instead of my Vanguard inherited IRA account number on the TIAA rollover paperwork
What corrective action can I take to avoid any taxes and penalties?
Will the rollover be considered a taxable distribution, and hence has to come out of my IRA, if no corrective action can be taken otherwise?
Permalink Submitted by Alan - IRA critic on Tue, 2025-10-07 22:54
If this occurred recently, there is a small chance that VG would agree to back out the rollover contribution and deposit it to your inherited IRA as an unreported adjustment. Again, small chance but it is worth asking because that is the only way to avoid expensive consequences. Maybe having created an inherited IRA at VG and VG’s knowing that they will have to process an excess IRA removal may constitute reasons for VG to consider your request. Note that there is some precedent for a custodian to agree to this request if your own IRA was a new account that only holds the inherited plan balance, but that does not appear to be the case here. Again, it’s a long shot so you need to get access to a very experienced CSR at VG, because most of them will be unfamiliar with this fact pattern and just refer to your tax advisor.
If they decline this request, then you will have to report the 1099R from the 403b as a taxable distribution and your taxable income would spike by that amount this year. In addition the amount rolled into your own IRA becomes an excess IRA contribution to the extent that it exceeds the amount you could have contributed to your IRA from your earned income and did not contribute to your IRA or Roth IRA. For retirees, it will all be an excess contribution, so you would have to request that VG treat it as a regular excess IRA contribution and remove it adjusted for any gain or loss while these excess funds were in your IRA. Do NOT just take a distribution, it must be a requested removal of excess to generate a 1099R that only taxes you on any gains, not on the total distribution. That will leave you pretty close to the net result if you had just asked for a total distribution of the inherited 403b. But there will be the added removal transaction to process that will generate a 1099R and reported on your return. Your return should include an explanatory statement explaining why you are reporting the 403b 1099R as taxable instead of a direct rollover and also a statement of explaining the removal of the IRA excess contribution.
Other than VG agreeing to reverse the erroneous deposit, there is no way to get these funds rolled into an inherited IRA now because a distribution to a non spouse beneficiary is never rollover eligible.