401k Rollover Error with Pre-tax, After-tax, and Roth Conversion - Need Advice!
Title: 401k Rollover Error with Pre-tax, After-tax, and Roth Conversion - Need Advice! 1 Back in February this year, I ran into a mess with my 401k rollover from Fidelity (my old employer's provider) to Vanguard. I opened both a traditional IRA and Roth IRA at Vanguard, expecting to properly distribute my pre-tax and after-tax contributions. The Fidelity site only allowed rolling over the entire amount to one destination account (couldn't split it up). I called Fidelity beforehand since I had both pre-tax and after-tax contributions, and it didn't make sense to dump everything into just a traditional IRA. The rep told me their system limitation meant they'd need to send two separate checks - one to Vanguard for the pre-tax portion, and they'd mail the after-tax (non-taxable portion) check directly to me. What actually happened? They sent ONE check with EVERYTHING to Vanguard, completely ignoring what we discussed. Before I could intervene, Vanguard deposited the entire amount into my traditional IRA. I've spent the last several months going back and forth with both companies. Eventually, I gave up on getting Vanguard to fix it on their end despite showing them documentation that it should've been two separate checks. Instead, I did a Roth conversion to move the non-taxable amount (shown on my Fidelity statement) to my Roth IRA. I even contacted the IRS directly, though that was frustrating - the agent was really hard to understand and quite rude. From what I gathered, he said I should note on my tax form that part of the conversion is non-taxable and include supporting documentation. This whole situation has me so anxious that I haven't invested any of this money yet - it's just sitting in both accounts because I'm worried investments would complicate things further with gains/losses. My questions: 1) Vanguard likely won't properly code my Roth conversion to show it was moving non-taxable money to a Roth IRA. Despite ongoing conversations, they're not being helpful. If they don't code it correctly by year-end, I'm concerned about explaining to the IRS that this conversion should be tax-free since I already paid taxes on that portion. I normally file digitally myself, but should I find an accountant for this mess? 2) Vanguard added a 4% match to my conversion. Since everything initially went into my traditional IRA, that match is there too. If they had done this correctly from the start, would there have been a 4% match to my Roth IRA as well? Would I pay taxes on this match regardless of which account it's in? Or would I pay taxes on the match now if in Roth vs. later in retirement if in traditional? 3) I spoke with someone at PricewaterhouseCoopers (not a tax expert but knowledgeable) who suggested I should also convert the gains from my after-tax contributions. Currently, the non-taxable amount rolled over is just my contribution. I always thought these were Roth contributions but recently learned they're after-tax but not Roth. He thinks I should calculate the proportional gains from my after-tax contributions and convert those to Roth too. I'd pay taxes on the gains now, but they could grow tax-free. Is this advisable? I'm looking to hire a tax professional for this. I called one firm whose representative thought I need to get Vanguard to code this correctly before year-end. I'm trying to discuss this with Vanguard again but don't have much hope. They don't even have a phone number, so I'm limited to email and chat. Any advice would be greatly appreciated!
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Gabriel Graham
8 This is a classic "mega backdoor Roth" situation that got botched in the distribution process. Let me break this down: When you have after-tax (non-Roth) contributions in a 401k, those amounts can be rolled over to a Roth IRA tax-free because you've already paid tax on them. The pre-tax portions (traditional contributions, employer match, and earnings on all contributions) should go to a Traditional IRA. For your questions: 1) You'll need to file Form 8606 with your tax return to document the non-taxable portion of your conversion. This form tracks your "basis" (already-taxed money) in IRAs. Even if Vanguard codes the entire conversion as taxable on your 1099-R, the 8606 will correctly allocate what's taxable and what isn't. Keep all documentation from Fidelity showing your after-tax contributions. 2) There's actually no such thing as a "match" on a rollover or conversion. I think you might be confusing terms here. If Vanguard somehow added 4% to your account value, that's unusual and would likely be considered taxable income regardless of which account it went into. 3) Your PwC contact is referring to the "pro-rata rule" for IRA distributions. For after-tax 401k money, you're supposed to roll over both the contributions AND their associated earnings. The contributions go tax-free to Roth, while the earnings are taxable but can also go to Roth (paying tax now) or Traditional (paying tax later). The ideal path forward: Document everything thoroughly, file Form 8606 correctly, and possibly get tax help for this year's return.
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Gabriel Graham
•3 Thanks for the detailed explanation! I'm a bit confused about the Form 8606. Will I need to specifically request this form or is it something that automatically gets generated with most tax software? Also, when you say "basis" does that mean I need to know exactly how much of my original contributions were after-tax?
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Gabriel Graham
•8 Form 8606 is included in all major tax software, but you'll need to tell the software you have non-deductible IRA contributions or a partially taxable conversion. You'll need to input this information yourself - it doesn't get automatically generated. Yes, "basis" refers to the exact amount of after-tax contributions you made. You should have documentation from Fidelity showing this amount - look for statements specifically breaking down your 401k balance between pre-tax and after-tax contributions. This exact dollar amount is crucial for correctly filling out Form 8606.
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Gabriel Graham
12 I went through something similar last year and discovered taxr.ai which literally saved me thousands in potential tax mistakes. My 401k rollover was mishandled with a mix of pre-tax and Roth funds, and I was completely lost until I uploaded my statements to https://taxr.ai and their system helped me identify exactly what portions should be taxable vs non-taxable. What really helped was their document analysis that clearly showed the breakdown of contributions by type. I was able to print that analysis and include it with my tax return. Their system even helped me prepare the 8606 form correctly, which was crucial for documenting my non-taxable basis. The best part was being able to chat with their tax professionals about my specific situation when I got confused about how to handle the gains on my after-tax portions. Definitely worth checking out given your complicated situation.
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Gabriel Graham
•5 How exactly does the document analysis work? I've got statements from two different companies and they don't format things the same way. Would their system be able to make sense of that? Also, does it help with the actual form filing or just the analysis part?
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Gabriel Graham
•17 I'm skeptical. How is this any different from talking to a regular accountant? And what credentials do their "tax professionals" have? I've been burned before by online services claiming expertise.
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Gabriel Graham
•12 The document analysis works by uploading your statements (regardless of format) and their AI identifies the key tax information across different company statements. In my case, it recognized contribution types even though my old 401k provider and new IRA provider used completely different terminology. The service helps with both analysis and preparing the actual forms. Their system generates a completed Form 8606 that you can either print and file or use as a guide when entering information into your tax software. It essentially translates the confusing financial statements into clear tax instructions. Their tax professionals include licensed CPAs and Enrolled Agents - you can see their credentials in the app. Unlike a regular accountant who might charge $300+ per hour for this kind of specialized analysis, taxr.ai's subscription model makes it much more affordable for complex one-time situations like rollovers.
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Gabriel Graham
17 I was really skeptical about using an online service for my complicated 401k rollover issues as I mentioned above, but I finally tried taxr.ai after struggling for weeks with my own research. I had a similar situation with misclassified contributions between pre-tax and after-tax accounts. What surprised me was how quickly their system identified the discrepancy between what my 401k administrator reported and what actually should have been taxable. They generated a detailed report breaking down my basis calculations that I could actually understand and provided step-by-step instructions for completing my Form 8606. Their document analysis caught that $14,500 of my rollover was being incorrectly treated as fully taxable when it had already been taxed. Saved me from a huge tax mistake! Now I understand exactly how to document everything for the IRS regardless of how my broker codes the 1099-R.
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Gabriel Graham
6 Has anyone tried reaching the IRS directly about these kinds of rollover issues? I've been trying for 3 weeks to get someone on the phone who actually understands 401k rollovers and Roth conversions. Every time I call the general number I wait 45+ minutes only to get transferred and disconnected. I discovered https://claimyr.com after seeing it mentioned on another tax forum, and you can watch how it works at https://youtu.be/_kiP6q8DX5c. They basically hold your place in the IRS phone queue and call you when an agent is about to answer. I was super frustrated with the endless waiting and getting nowhere, so I gave it a shot. Got a call back within about 2 hours and actually spoke to someone in the retirement accounts department who could answer my specific questions about coding errors on 401k rollovers. The agent confirmed exactly what I needed to document for my tax return and even noted my account so there wouldn't be automatic flags. Saved me days of frustration!
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Gabriel Graham
•9 Wait, how does this actually work? Do they just automate the hold process somehow? And does the IRS actually have specific departments for retirement accounts that regular callers don't get access to?
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Gabriel Graham
•17 This sounds like paying for something that should be free. Why would I pay a third party just to talk to the IRS? Seems like a scam to profit off of the IRS's terrible customer service.
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Gabriel Graham
•6 It works through an automated system that navigates the IRS phone tree and holds your place in line. When their system detects an agent is about to answer, they call you and connect you immediately. It saves you from being stuck on hold for hours. Yes, the IRS does have specialized departments! The trick is knowing which options to select in their phone system to reach the right department. When you describe your issue to Claimyr, they route you to the correct department (in my case, the retirement accounts specialists), which many people don't realize exists when they call the general number themselves. I completely understand the hesitation. I initially felt the same way - why should I pay for something that should be free? But after three failed attempts spending over 2 hours each time on hold only to get disconnected or transferred to someone who couldn't help, I realized my time was worth more. It wasn't about paying to talk to the IRS, it was about paying to avoid wasting half a day on hold.
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Gabriel Graham
17 I need to follow up about my experience with Claimyr that I was so skeptical about earlier. After continuing to get nowhere with the IRS on my own (spent another 1.5 hours on hold yesterday before getting disconnected again), I reluctantly tried the service. Got connected to an actual IRS retirement specialist in about 90 minutes without having to actively wait on the phone. The agent walked through my exact rollover situation, confirmed that Form 8606 was the correct approach, and even emailed me specific instructions for documenting my non-taxable basis when the 1099-R doesn't match reality. I hate admitting when I'm wrong, but this service genuinely solved a problem that was eating up days of my time. The specialist I spoke with knew immediately what happened with my botched rollover and gave me clear documentation instructions that my regular tax person wasn't familiar with.
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Gabriel Graham
21 One important thing nobody's mentioned yet - you need to be VERY careful about timing with these rollover corrections. IRS rules give you 60 days from when funds are distributed to get them into the right account type before it counts as a taxable event. It sounds like you're well past that window now. The good news is that your Roth conversion of the after-tax amount is probably the right move given the circumstances. Just make sure you keep meticulous records showing: 1. The original 401k statement showing pre-tax vs. after-tax balances 2. The rollover documentation 3. The Roth conversion paperwork 4. Any communications with Fidelity or Vanguard about the error Also, consider asking Vanguard for a "corrected" 1099-R at tax time if they code it wrong initially. They may not do it, but it's worth requesting.
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Gabriel Graham
•1 That's a great point about the 60-day window! I'm definitely past that now since this all started in February. Would this affect how I need to handle the taxes differently? And have you ever successfully gotten a company to issue a corrected 1099-R? Vanguard has been so unhelpful so far that I'm not optimistic.
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Gabriel Graham
•21 Since you're past the 60-day window, your approach of doing the Roth conversion was exactly right - it's essentially a "fix" that works within the current tax rules. The 60-day rule would have applied if you were trying to get the money physically returned and then redeposited correctly. I have successfully received a corrected 1099-R, but it took persistence. The key is to talk specifically to their tax reporting department (not general customer service) and clearly explain that the current coding is factually incorrect. Reference specific IRS publications like Publication 590-A regarding rollovers with after-tax contributions. It's definitely worth trying, but prepare your Form 8606 correctly regardless of whether they fix their 1099-R.
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Gabriel Graham
4 Has anyone here dealt with the pro-rata rule calculation for partial Roth conversions? I've got a similar situation where I need to determine how much of my after-tax 401k earnings should be converted vs. kept in traditional. Is it better to convert all at once or spread it out over multiple tax years?
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Gabriel Graham
•8 The pro-rata rule only applies when you have a mix of pre-tax and after-tax money in IRAs. The basic calculation is: (after-tax amounts ÷ total IRA balance) × conversion amount = non-taxable portion. Generally, if you're in a lower tax bracket now than you expect to be later, converting more at once makes sense. If you expect to be in a lower bracket in future years, spreading conversions out could save on taxes. For after-tax 401k earnings specifically, you'll pay taxes now if you convert them to Roth, or later if you keep them traditional. The main advantage of converting is that all future growth becomes tax-free, not just the original earnings.
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Gianni Serpent
•15 The timing decision really depends on your current vs expected future tax brackets. One strategy I've seen work well is to convert just enough each year to "fill up" your current tax bracket without pushing you into the next one. For your specific situation with after-tax 401k earnings, you might want to run the numbers both ways. Calculate what you'd pay in taxes now on those earnings versus what you might pay in retirement (considering that traditional IRA withdrawals are taxed as ordinary income, not capital gains). Also keep in mind that Roth conversions can affect other tax situations - like IRMAA surcharges for Medicare if you're near retirement age, or impact on financial aid if you have kids in college. The "all at once vs. spread out" decision isn't just about tax rates.
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