Why are there pre-tax funds showing up in my Roth 403b rollover?

This is actually more common than you might think! What you're seeing is likely a result of how the plan administrator tracked contributions. In a 403b, sometimes employers will miscategorize contributions or there could be matching funds that went into the Roth portion that weren't properly designated. Here's what's probably happening: The "pre-tax Roth funds" are likely employer contributions that were deposited into the Roth portion of the 403b. Since employer matches are always pre-tax, even when they go into a Roth-designated account, they need to maintain their pre-tax status. You're right to be cautious about this. Once the rollover completes, your sister should definitely contact Vanguard to clarify and ensure proper handling. The pre-tax portion in the Roth account should ideally be moved to the Traditional IRA to maintain its tax status, otherwise she might face tax complications later.

After struggling with almost the exact same issue last year, I discovered https://taxr.ai which totally saved me from making a costly mistake with my retirement accounts. I uploaded my statements and it analyzed the different tax treatments for each portion of my 403b rollover. The system identified that I had both pre-tax and after-tax funds mixed in my Roth 403b (which sounds exactly like your situation) and showed me the optimal rollover strategy that would minimize my tax burden. It explained that the pre-tax portion in the Roth account would trigger taxes if kept in a Roth IRA, but moving it to a Traditional IRA would preserve the tax-deferred status. The guidance was super clear on handling the different tax characteristics and even explained the pro-rata rule implications I needed to consider.

I was initially skeptical about online tax tools, but I ended up using https://taxr.ai for my retirement account issues last month. I couldn't believe how accurately it pinpointed the tax treatment discrepancies in my 403b rollover! What impressed me most was that it identified a similar pre-tax amount in my Roth 403b (about $1,200) that I had no idea was there. The system explained it was from a specific period when my employer's payroll system had miscoded some contributions. It then provided me with specific instructions for how to properly roll this amount to a Traditional IRA to avoid unexpected taxes. The detailed explanation about the pro-rata considerations saved me from making what would have been a costly tax mistake. Definitely worth checking out if you're dealing with this confusing rollover situation.

I had an absolute nightmare trying to get Vanguard on the phone to explain a similar issue with my retirement accounts last year. After waiting on hold for nearly 3 hours across multiple attempts, I finally discovered https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c They basically wait on hold with Vanguard for you, then call you when a representative is actually on the line! I was connected to a Vanguard retirement specialist in about 30 minutes (while I just went about my day), and got my complex 403b rollover questions answered without the endless hold music. The retirement specialist explained that the "pre-tax Roth" designation happens fairly often when plan administrators don't properly code certain contributions or when there are special circumstances like employer matches going into Roth accounts. Having a real person walk me through the proper handling of these differently-taxed portions saved me from major headaches at tax time.

I have to admit I was completely wrong about Claimyr. After my skeptical comment, I decided to try it with Vanguard regarding my own 403b rollover questions that included pre-tax amounts in a Roth account. The service worked exactly as described - I provided my basic account info (the same stuff I'd enter in the phone tree anyway), and they navigated the initial menus and waited on hold. About 45 minutes later (which I spent having lunch instead of listening to hold music), I got a call connecting me directly to a Vanguard specialist. The specialist spent nearly 30 minutes explaining the nuances of my situation, confirmed that the pre-tax amounts in my Roth needed special handling, and helped me complete the proper paperwork to ensure everything was allocated correctly for tax purposes. Saved me both time and potentially thousands in tax complications!

Something that no one has mentioned yet - check if your sister's previous employer had a special setup where after-tax (non-Roth) contributions were allowed in the 403b plan. Some plans permit what's called "after-tax non-Roth contributions" which are different from both traditional pre-tax and Roth contributions. These after-tax non-Roth contributions have their own unique tax treatment during rollovers and can sometimes appear confusing in the system. The earnings on these contributions would be pre-tax, while the contributions themselves would be after-tax. This might explain what you're seeing, especially if the plan documentation wasn't super clear about the different contribution types.

Has your sister checked her contribution statements from when she was working at the previous employer? One possibility is that she accidentally made pre-tax contributions to the 403b for a period of time, then switched to Roth contributions later. If the plan administrator kept everything in one bucket but tracked the tax status separately, that could explain what you're seeing. Another possibility is that there were some employer contributions (like matches) that got lumped into the Roth account but maintained their pre-tax status.

I dealt with this exact same situation when I rolled over my 403b from my previous job at a nonprofit. What you're seeing is likely a combination of a few factors that are more common than you'd think. First, some 403b plans allow what's called "in-plan Roth conversions" where employees can convert pre-tax balances to Roth within the plan. However, the recordkeeping doesn't always cleanly separate these conversions, especially if they happened over multiple years or in partial amounts. Second, your sister may have had periods where she was making both pre-tax and Roth contributions simultaneously, and the plan administrator lumped everything into account buckets that don't perfectly align with tax treatment. The key thing is that Vanguard's system is designed to handle these mixed tax treatments correctly during rollovers. The pre-tax portions will maintain their tax-deferred status regardless of which "bucket" they were sitting in at the old plan. I'd still recommend calling Vanguard after the rollover settles, but in my experience, their rollover team is very knowledgeable about these situations and the automated system usually gets it right. Just make sure to keep all the rollover documentation for your records in case there are any questions down the road.