Roth 401k rollover to Pre-tax IRA mistake
I have a client who mistakenly rolled over his Roth 401(k) balance into a pre-tax IRA. He was working directly with Fidelity (instead of an advisor) and believed they instructed him to open a “Rollover IRA.” In reality, he should have opened a Roth IRA.
He requested a rollover check for the Roth portion from his employer plan, but when the check arrived, it was deposited into the Rollover IRA. He has since contacted Fidelity, but they informed him they cannot “undo” the transaction. Their only suggestion was to consult a tax advisor.
I know this type of situation must happen from time to time, and I assume there is a way to correctly report it to the IRS. I’m reaching out for guidance on how best to handle this.
Thanks!
Permalink Submitted by Alan - IRA critic on Mon, 2025-09-29 17:17
It’s a mess, but possible to correct if Fidelity will cooperate. Wasn’t the Roth direct rollover check made payable to client’s Roth IRA? If so Fidelity should not have deposited it to a TIRA even if the client gave them the wrong account number. If instead this Roth 401k was a distribution to the client, please advise.
It’s actually fortunate that a Roth 401k balance is not eligible to be rolled into a non Roth IRA as that would be an excess TIRA contribution that Fidelity must correct like any other excess regular TIRA contribution. Fidelity should know this, although they might request some documentation to show that this money was distributed from a Roth 401k account. Once these funds have been distributed, client can use that money to make a rollover contribution to the Roth IRA, where the funds should have been deposited in the first place.
If the original check was a direct rollover check, there is no 60 day time limit to complete the rollover, but if Fidelity does not accept the rollover contribution and it’s been over 60 days client will have to use IRS Notice 2020-46 (google it) with the reason for delay being either the first or third reason on the list (first is custodian fault, 3rd is participant deposited the check to the wrong account). Either reason should do as long as Fidelity accepts the form.
I suggest that client (perhaps with your help) call Fidelity and explain what needs to be done to correct this error. Ask for a retirement plan specialist because a typical CSR will never understand this fact pattern. They need to understand that a rollover was made to an eligible type of account and this created an excess contribution that they must remove. Then a rollover contribution must be made to the Roth IRA.
If the above can be completed client will be able to report the direct rollover consistent with the H coded 1099R they will get from the plan in January, and the funds will be back in the intended account.