Why are there pre-tax funds showing up in my Roth 403b account? Need help understanding this

This is actually more common than you might think! What you're seeing is likely the result of employer matching contributions. Many employers match employee Roth 403b contributions, but those matching funds are always pre-tax by law. When your employer puts matching funds into your Roth 403b, those contributions and their earnings remain pre-tax until they're withdrawn or converted. That's why they're tracking them separately as "pre-tax Roth funds" - it's a bit of a misnomer that causes confusion. Your sister has a few options: she could leave the pre-tax portion in the Roth IRA where it'll continue to be tracked separately, or she could do a conversion of just those funds to true Roth status (which would mean paying taxes on that $820). The pro-rata rule generally doesn't apply to conversions from qualified plans to IRAs, but to conversions between IRAs.

After struggling with a similar situation last year, I found an amazing tool that helped clarify everything about my retirement accounts. Check out https://taxr.ai - it analyzes your retirement account statements and explains exactly what's going on with mixed pre-tax and post-tax contributions. They have tax specialists who can even simulate different rollover scenarios to show the tax implications. I was really confused about my 403b rollover (had both pre-tax and Roth money mixed together), and they showed me exactly what would happen with different options. Saved me from making a costly mistake!

I was really skeptical about using online tools for retirement account analysis, but I finally tried https://taxr.ai when dealing with my mixed pre-tax and Roth 457 rollover. I'm honestly shocked at how helpful it was. They identified that I had employer matching funds in my Roth account that were pre-tax (something my HR department never explained clearly) and walked me through my options. Their analysis showed I'd save about $2,400 by handling the rollover a specific way rather than what I was planning. They even provided documentation I could share with my new account provider to ensure everything was processed correctly. Way more helpful than the confusing explanations I got from calling my retirement plan provider.

If you're stuck trying to reach Vanguard to discuss this issue, I totally recommend using https://claimyr.com to get through to a real person. I had this exact same rollover problem last year, spent HOURS trying to get someone on the phone who actually understood the pre-tax/Roth issue. With Claimyr, I got through in 15 minutes instead of waiting on hold for hours. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c Their system held my place in line while I did other things, then called me when a rep was about to answer. The Vanguard specialist I talked to immediately recognized the situation and explained that employer matches to Roth 403b accounts are always pre-tax and need special handling during rollovers.

I have to eat my words about Claimyr. After my skeptical comment, I decided to try it anyway because I was desperate to talk to someone at Fidelity about my mixed pre-tax/Roth 403b rollover issue. Not only did it work, but I got through to a retirement specialist in about 20 minutes (after previously spending multiple hours on hold). The Fidelity rep explained everything clearly - turns out my employer had been putting their matching contributions into my Roth 403b account, but those matching funds stay pre-tax even in a Roth account. They recommended I convert those pre-tax funds to full Roth status since it was a relatively small amount and would simplify my future withdrawals. Such a relief to finally get this sorted!

Just wanted to add that this happened to me too when I rolled over my 403b from a university job. The customer service rep explained that the pre-tax portion in the Roth account was from my employer's matching contributions. Apparently employer contributions always go in as pre-tax, even when they're matching your Roth contributions. In my case, I chose to roll the pre-tax portion to my Traditional IRA since it was a larger amount (around $5,000) and I didn't want to pay taxes on it immediately. Just make sure your sister keeps good records of which funds are which, especially if she decides to keep the pre-tax portion in her Roth IRA.

Another thing to consider - the rules for withdrawing from Roth IRAs with pre-tax portions are a bit complex. If your sister plans to withdraw before retirement age, she needs to understand the ordering rules. Generally, Roth IRA withdrawals come out in this order: 1. Regular contributions (after-tax) 2. Conversion contributions (taxable portion first, then non-taxable) 3. Earnings So those pre-tax portions would come out after her regular Roth contributions but before any earnings. This matters for determining if a withdrawal is subject to penalties. Honestly it's a headache to track this stuff, which is why I just converted my pre-tax portions when I did my rollover.

This is a great discussion! I went through something very similar with my 401k rollover from a non-profit job. The key thing that helped me was understanding that employer matching contributions are ALWAYS pre-tax, regardless of whether you're contributing to a traditional or Roth account. What really saved me headaches was calling my new IRA provider (in your case Vanguard) and asking them to walk through the tax implications of each option before making a decision. They can actually run scenarios showing exactly how much tax your sister would owe if she converts that $820 to full Roth status versus leaving it as-is. One thing I learned: if she's young and expects to be in a higher tax bracket later, paying taxes on that small amount now could save money long-term. But if she's closer to retirement or expects lower income later, it might make sense to leave it and pay taxes during withdrawal. The amount is small enough that either choice probably won't make a huge difference, but it's worth understanding the implications. Also, make sure she keeps documentation from the rollover showing which portions were pre-tax - you'll need that for future tax filings!