401K Pro-Rata Rule for Mega Backdoor ROTH IRA (Vanguard)

[bearkat]

Oh great and knowledgeable ones,

I got a few questions after reading http://forum.mrmoneymustache.com/investor-alley/did-the-irs-just-give-an-extra-$35kyr-of-tax-free-growth-saving-space/ and specifically this post below from skyrefuge (with lots of quotes from others).

For the record, I work at a company that allows after-tax contributions AND in-service distributions of after-tax 401k dollars only BUT no mention of an after-tax sub-account (that I know of). All of my contributions, earnings, and company match to date have been on a pre-tax basis and my 401k balance is ~$80k.

Quote from: brooklynguy on 08 January 2015, 14:51:41

Can I roll over just the after-tax amounts in my account to a Roth IRA and leave the remaining amounts in the plan (i.e., take a partial distribution of just the after-tax amounts)?

No. The guidance provided in Notice 2014-54 does not alter the requirement that each distribution from a plan must include a proportional share of the pretax and after-tax amounts in the account. Accordingly, any partial distribution from the plan must include some of the pretax amounts you have in your account -- you cannot take a distribution of only the after-tax amounts and leave the pretax amounts in the plan. In order to roll over all of your after-tax contributions to a Roth IRA, you could take a distribution of the full amount (all pretax and after-tax amounts) in your account, roll over all the pretax amounts in a direct rollover to a traditional IRA or another eligible retirement plan, and roll over all the aftertax amounts in a direct rollover to a Roth IRA.

At first blush, this seems to run counter to the mega back door roth strategy.

I haven't been following this nearly as closely as you guys, but it appears like a giant roadblock to me too. Kitces mentions it twice in his post:
https://www.kitces.com/blog/irs-notice-2014-54-acquiesces-on-splitting-after-tax-401k-contributions-for-roth-conversion/

Quote from: Kitces

Notably, to the extent a retiree takes out only part of the account, the pro-rata rules under IRC Section 72(e)(8) do still apply to determine how much is coming out in the first place. Thus, for instance, if the 401(k) balance is $100,000 including $20,000 of after-tax funds, and the individual only requests a $20,000 distribution, then the distribution is treated as $16,000 of pre-tax and $4,000 of after-tax; while this could still be split, with the $16,000 of pre-tax to a rollover IRA and $4,000 of after-tax to a Roth, if the account owner wants to get out all $20,000 of after-tax funds into a Roth, he/she will be required to take all $100,000 from the 401(k) plan – getting out the whole $20,000 of after-tax and $80,000 of pre-tax – and can then allocate the pre-tax funds to a rollover IRA and the after-tax to a Roth.

All the Examples in IRS 2014-54 (http://www.irs.gov/pub/irs-drop/n-14-54.pdf ) seem to support this view too.

Neither source mentions anything about seattlecyclone's idea of "sub-accounts" that can be withdrawn from individually, though I have seen references to 401(k) plans that allow such sub-account withdrawals, and there are people in page 4 of the bogleheads thread (https://www.bogleheads.org/forum/viewtopic.php?f=2&t=137366&start=150 ) who believe such legal separation is possible. I guess my interpretation of 2014-54 is that it explicitly disallows such sub-account withdrawals, and tells 401(k) plans "no, you can't actually do what you've been doing". But it seems like some of those bogleheads have dug deeper into the legalese than me, so my answer is probably still "who knows?" I think I'm just glad I can't do after-tax contributions of any sort in my plan so I don't have to be worried/tantalized. :-)

So deciding to blaze myself a new trail of tax-advantaged savings, I did the following:

1. Elected to deposit ~$1K into my 401k on an after-tax non-Roth basis on my last paycheck of 2014. (I'd already maxed out my ROTH IRA and pre-tax 401k for 2014.)
2. Saw ~$1k additional in my 401k and checked my "funding sources" and confirmed that it had classified as "after-tax"
3. Waited on a few days then called 401k administrator (Vanguard) to initiate the Mega Backdoor Roth Conversion
     a. on phone call, the Vanguard associate knew exactly what I wanted to do
     b. Vanguard associate confirmed I could move my ~$1K of after-tax contributions to my ROTH IRA (also with Vanguard), and the ~$10 of earnings, I elected to take to my checking account so I would only have a "non-taxable" conversion and not worry about a "taxable" conversion withdrawal later on. NOTE: I knew and accepted the 10% penalty and income tax on the ~$10, as I don't have a traditional IRA to be able to roll it into.
     c. Transaction complete, and I just need to wait a few days for the changes to be reflected in my account.
4. One week later, I see that ~$800 has been deposited into my checking account (instead the of the ~$10 minus penalty & with-holding.
5. Next day, I see that only $1.35 has been added to my Roth IRA (instead of the $1K I am expecting)
6. I call Vanguard to tell them about my situation and they say they will "launch an investigation"
7. Two days later (on a Friday), I get a phone from Vanguard that they realize the transaction was not as I specified, and they "will definitely figure this out" and get back to me on Monday (yesterday)
8. Now I am waiting for a second call from Vanguard to know what the heck is going on.

How can I specifically instruct Vanguard to deposit $1k here and $10 there, and then they do the exact opposite without notifying me ahead of time??

What are my options here? Do you think it likely that Vanguard will be able to correct it to make the deposits as I requested? Can I just -undo the transaction entirely? Is this the effect of the pro-rata rule? Did Vanguard not know about pro-rata when performing my transaction?

Has anyone else been in this situation?

[MDM]

bearkat, a well written documentary.  Much appreciate folks such as you on the bleeding edge of new ideas, and look forward to hearing how it resolves.

I think you chose wisely to put $1K in play - large enough to see what happens, yet small enough not to lose sleep over.  Again, thanks and best wishes.

[skyrefuge]

5. Next day, I see that only $1.35 has been added to my Roth IRA (instead of the $1K I am expecting)[/b]

Was this $1.35 a typo on your part, or is that the accurate figure? If it's accurate, then it really makes no sense. But if you simply missed a "2" when you were typing, then my math shows that ~$12.35 should have gone to the Roth if the pro-rata rule was being followed ($1000 * ($1000 / $81000) = $12.35).

So one possibility is that the Vanguard rep thought your plan had "separate contracts"/"sub-accounts", but when the time came to do the actual transaction, it was discovered that it didn't? Or maybe your plan does have "separate contracts"/"sub-accounts", but the transaction was not entered in that manner, against your request?

[MrMoogle]

I use Vanguard too, and I just changed my contribution to include after-tax.  My plan doesn't mention sub-accounts, so I emailed them a few times before I did that to make sure it works as I expect.  In a week when I get my paycheck, I'll call them up and transfer the principle to a Roth IRA and earnings to a tIRA.  I'll let you (and half the people I work with) know how it goes.

The way I understand it, is the pro-rata doesn't play into your full balance, because you can't withdraw tax-advantaged money while still employed.  If your plan allows, you can withdraw this after-tax.  So this pro-rata is based off of after-tax contributions and after-tax earnings.

[bearkat]

5. Next day, I see that only $1.35 has been added to my Roth IRA (instead of the $1K I am expecting)[/b]

Was this $1.35 a typo on your part, or is that the accurate figure? If it's accurate, then it really makes no sense. But if you simply missed a "2" when you were typing, then my math shows that ~$12.35 should have gone to the Roth if the pro-rata rule was being followed ($1000 * ($1000 / $81000) = $12.35).

So one possibility is that the Vanguard rep thought your plan had "separate contracts"/"sub-accounts", but when the time came to do the actual transaction, it was discovered that it didn't? Or maybe your plan does have "separate contracts"/"sub-accounts", but the transaction was not entered in that manner, against your request?

It was actually a total $1.31 deposited into my IRA. I have three funds in my IRA that got deposits of $0.43, $0.43, and $0.45 respectively.

Another wrinkle is that when I log on to my 401k, my after-tax balance is $0.00. This tells me that all the money that left should have been after-tax with no pro-rata rule. I would think that if the pro-rata rule had been applied my after-tax portion would have only decreased by $1-$12.

[bearkat]

I use Vanguard too, and I just changed my contribution to include after-tax.  My plan doesn't mention sub-accounts, so I emailed them a few times before I did that to make sure it works as I expect.  In a week when I get my paycheck, I'll call them up and transfer the principle to a Roth IRA and earnings to a tIRA.  I'll let you (and half the people I work with) know how it goes.

The way I understand it, is the pro-rata doesn't play into your full balance, because you can't withdraw tax-advantaged money while still employed.  If your plan allows, you can withdraw this after-tax.  So this pro-rata is based off of after-tax contributions and after-tax earnings.

MrMoogle,

It sounds like we are in similar situations. I also asked before I tried the after-tax contribution and was told it would work properly. Then this happened. I really hope that yours works out, as that means there should be better luck for the rest of us (ie me).

I look forward to hearing from you in a week with your results. I hope I hear back from vanguard regarding my issue by then, and we can compare notes.

[brooklynguy]

It was actually a total $1.31 deposited into my IRA. I have three funds in my IRA that got deposits of $0.43, $0.43, and $0.45 respectively.

Another wrinkle is that when I log on to my 401k, my after-tax balance is $0.00. This tells me that all the money that left should have been after-tax with no pro-rata rule. I would think that if the pro-rata rule had been applied my after-tax portion would have only decreased by $1-$12.

Like skyrefuge said, these numbers really make no sense.  It sounds like Vanguard simply fucked up your rollover.

But note that if an analog to the regular Backdoor Roth's pro-rata rule did apply to the Mega Backdoor Roth (and I'm not saying it does--all things considered, even including the IRS "faq" newsletter on IRS 2014-54 that led me in a temporary fit of panic to post a call to arms to this forum's resident tax experts in the other thread you cited, I still believe the Mega Backdoor Roth is a legitimate strategy consistent with the tax laws that is not subject to a pro-rata rule that cuts across different subaccounts within a 401(k) plan and should be respected by the IRS*), the after-tax portion of your 401(k) would not necessarily decrease by the pro-rated portion after giving effect to the rollover.  Instead, if it were to work in a way analogous to the IRA world's regular Backdoor Roth, the entire rollover from your 401(k) after-tax subaccount would be treated as if it were a rollover from your various 401(k) subaccounts on a pro rata basis, even though it was in fact a rollover of only your after-tax account.

I know that was a mouthful and we're on the cutting edge of FIRE tax strategies here, so I would be grateful if anyone else wants to weigh in with their agreement or disagreement.

In any event, keep up posted on what happens with Vanguard.

*Like all of my posts, this is not intended to, and does not, constitute tax or legal advice.

[skyrefuge]

Instead, if it were to work in a way analogous to the IRA world's regular Backdoor Roth, the entire rollover from your 401(k) after-tax subaccount would be treated as if it were a rollover from your various 401(k) subaccounts on a pro rata basis, even though it was in fact a rollover of only your after-tax account.

I think this is another case where the 401(k) world differs from the IRA world more than we would expect it to.

In the 401(k) world, the distinction between funding sources is tracked within your account by your custodian, and none of those details are reported to the IRS.

In the IRA world, it's the opposite: the IRS tracks the breakdown between pre-tax and after-tax money (via your yearly filings of Form 8606), while the custodian sees it all as one pot of money.

In the above paragraphs, the parts in black I'm sure of, while the parts in grey I'm less-sure of. It was difficult to verify in my own Vanguard account, and certainly different custodians could vary in their tracking/reporting, but it didn't seem like there was any way to specify that an IRA contribution was intended to be "non-deductible". Most tellingly, Form 8606 and 1040 allow you to decide at filing time how much of your IRA contribution you want to deduct (it doesn't have to be the maximum allowed), so even if there was a way to tell your custodian "this contribution is deductible", that would be superseded and made irrelevant by whatever you ended up telling the IRS.

So in the case of a pro-rata partial IRA conversion, the IRA is seen as a single pot that simply becomes smaller when the conversion is rolled out. It's an external tally of Form 8606s that defines and updates the mix inside that pot.

Whereas with a pro-rata partial 401(k) conversion, the 401(k) custodian better pull the money from the correct sub-pots, because as far as I know, there's no other method to know how to update the status of the remaining mix.

In bearkat's example, it seems clear that the conversion was not treated as the 99% after-tax money that it was intended to be. In that case, there should still be (a lot of) after-tax money available to do another after-tax conversion. In the IRA world, there would be, because after the first conversion, the calculations in Form 8606 would determine what the new available after-tax amount is. But in the 401(k) world, where the custodian is simply showing no money left in the after-tax pot, I don't know of any other method by which a subsequent conversion of after-tax money could be made.

Which, IMO, makes the situation particularly bad for bearkat. It would be one thing if Vanguard had incorrectly pulled out pre-tax money, and then treated it as pre-tax money; that's getting taxed earlier than you'd like (and penalized), but at least it's just getting taxed once. But pulling out after-tax money and treating it as pre-tax money is taxing that money early AND taxing it twice.

[brooklynguy]

In bearkat's example, it seems clear that the conversion was not treated as the 99% after-tax money that it was intended to be. In that case, there should still be (a lot of) after-tax money available to do another after-tax conversion.

But what is it about bearkat's example that leads you to conclude the rollover was not treated as 99% after-tax money?  As you said, in the 401(k) world, it's the custodian's tracking of the subpots that determines their treatment--and in bearkat's example, the custodian is showing that the after-tax subpot has been emptied of the ~$1k (as it should have been).

I have a new theory that might partially explain what happened.  Instead of doing a direct rollover to bearkat's Roth IRA (i.e., sending the funds/cutting a check directly to his Roth IRA account), they issued the ~$1k distribution payment directly to bearkat, but withheld 20% for federal income taxes (as they would have been required to do if the ~$1k represented the taxable portion of the distribution (i.e., the earnings), but which they should not have done, since the ~$1k actually represented the after-tax portion).  So under this theory, Vanguard's fuck-up number 1 was issuing a direct payment to bearkat instead of a rollover to his Roth IRA account, and Vanguard's fuck-up number 2 was treating the distribution as taxable (rather than after-tax) dollars.  This would explain how bearkat ended up with ~$800 in his checking account, but it still does not explain why $1.31 ended up in his Roth IRA.

[MrMoogle]

I think this is just a major mistake from Vanguard, probably because they haven't done this very often. 

IMO this is what happened:  They treated the after-tax like pre-tax.  When you take a pre-tax distribution (not rollover), they hold 20% for taxes, so that sort of explains the $1000 to $800.  I can't make much sense out of the $1.31, but that's so small, it's a rounding error, so it could literally be anything.

Any way, whoever did this had no idea what was going on.  It tells me I need to babystep them through what to do.  I can say  I want this $1k in my after-tax contributions to go into my Roth IRA, and I expect there to be $1k more in there when we are done.  And I want the ~$10 to go into my tIRA and I expect there to be $10 more in there when we are done.  And then I need to check all this happens. 

[skyrefuge]

But what is it about bearkat's example that leads you to conclude the rollover was not treated as 99% after-tax money?

The fact that it had ~20% in taxes withheld. I guess I should say that it seems like there were (at least) two actors involved at Vanguard: the first correctly treated it as after-tax money upon removal from the account (by noting that $0 remained in the after-tax pot), but then handed that $1000 bag of money the second actor who incorrectly treated it as pre-tax money upon delivery.

So yeah, I agree that the most likely explanation is a fuck-up on Vanguard's part where they did a default 20% withholding on what they mistakenly thought was a pre-tax withdrawal direct to cash. Though the $1.31 is still baffling (it can't even represent a pro-rata division of the ~$10 in earnings (which would make no sense anyway), since that'd be more like $0.12).

But the important thing to learn from this will be whether that fuck-up was in any way related to the existence (or lack thereof) of "separate contracts"/"sub-accounts" in bearkat's 401(k) plan. Did that throw off the Vanguard actors at all? Or was it just a straight-up fuck-up due to one Vanguard actor being familiar with such transactions and another being ignorant?

[brooklynguy]

Bearkat, any update?  We're all waiting with bated breath...

[bearkat]

Bearkat, any update?  We're all waiting with bated breath...

Unfortunately not.

I called to "launch the investigation" on Wed. Jan 7th. Vanguard said they would get back to me within 48 hours with a response. 2 days later, Friday the 9th, I received a detailed voicemail from Vanguard saying they acknowledged the discrepancy between my request and what happened, and that I would receive another call the coming Monday, the 12th. That call has never come.

I have since called twice, once on Thursday the 15th and yesterday the 19th to inquire about my case. Both times I have talked with an operator that knew about my situation, but couldn't comment on it. Only the account manager could do that, and he was unavailable. Both times, I was told they would contact the manger for me to rely my interest in the case, and that he would contact me ASAP. For what is it worth, they each mentioned that they could see the note where he was supposed to call me (but hasn't yet), and apologized for the lack of communication.

I'll call again on Friday or Monday to figure this out. The main thing is I want this resolved before the 30- or 60-day period is over. Otherwise, I imagine my options will be significantly more limited.

[MrMoogle]

So, I just got off the phone with Vanguard to do my first in-service distribution.  They said they'd have to mail me paperwork, that I would have to fill out and mail back.  They weren't allowed to just do it over the phone.  And they weren't allowed to email me the forms.

Next, I'll hear that they will want it sent by smoke signals...

Sigh.

[bearkat]

MrMoogle, that's annoying and really not great for doing frequent rollovers.

But on the plus side, you're helping keep the USPS around for future generations and MAYBE Vanguard will be less likely to screw yours up like they did mine.

Good luck

[brooklynguy]

Vanguard's insistence on processing rollovers via snail mail is what led me to start this thread:

http://forum.mrmoneymustache.com/investor-alley/protection-against-forced-market-timing/

[gluskap]

I was getting so excited about being able to use this strategy to put more into my Roth but I think it's too risky until people can figure out how to do it correctly.  Plus, I'm not sure if I'm correct but it looks like my company's 401k max is $18,000 whether it's pre-tax or after-tax.  I wanted to put $18000 pre-tax and additional money after-tax.  Is anyone else's company's 401k like this or am I just reading it wrong?

[MrMoogle]

I was getting so excited about being able to use this strategy to put more into my Roth but I think it's too risky until people can figure out how to do it correctly.  Plus, I'm not sure if I'm correct but it looks like my company's 401k max is $18,000 whether it's pre-tax or after-tax.  I wanted to put $18000 pre-tax and additional money after-tax.  Is anyone else's company's 401k like this or am I just reading it wrong?

I read somewhere only about 40% of 401k plans offer the after-tax option (it was determined from an online poll).  So you are probably not reading it wrong.  And not all of those 40% offer in-service distributions of that money.  So it's really only a small percent of who can fully use this tactic.

[MrMoogle]

Vanguard's insistence on processing rollovers via snail mail is what led me to start this thread:

http://forum.mrmoneymustache.com/investor-alley/protection-against-forced-market-timing/

It's not as bad as that, because I won't be given a check, just forms to fill out.

But as an expat, it took me two months to roll over my 401k, and I was very worried about market fluctuations.  I actually waited a few months to "time" the market.  I basically waited until there was a decent jump in the market, then started the process.  Two months later, it was slightly lower, but I probably missed out on some dividends.  Even if it was slightly higher, I'd still call it a success.

I really don't understand the legal benefits of snail mail...

[bearkat]

Bearkat, any update?  We're all waiting with bated breath...

Unfortunately not.

I called to "launch the investigation" on Wed. Jan 7th. Vanguard said they would get back to me within 48 hours with a response. 2 days later, Friday the 9th, I received a detailed voicemail from Vanguard saying they acknowledged the discrepancy between my request and what happened, and that I would receive another call the coming Monday, the 12th. That call has never come.

I have since called twice, once on Thursday the 15th and yesterday the 19th to inquire about my case. Both times I have talked with an operator that knew about my situation, but couldn't comment on it. Only the account manager could do that, and he was unavailable. Both times, I was told they would contact the manger for me to rely my interest in the case, and that he would contact me ASAP. For what is it worth, they each mentioned that they could see the note where he was supposed to call me (but hasn't yet), and apologized for the lack of communication.

I'll call again on Friday or Monday to figure this out. The main thing is I want this resolved before the 30- or 60-day period is over. Otherwise, I imagine my options will be significantly more limited.

So I called Vanguard again, and again I am not able to speak to the account manager, so I'm still not entirely sure what is going ...

On the plus side, the "operator" did give me a little bit of insight which I thought was useful and may be to y'all as well.

Me: Hi, I'm "bearkat" calling about some issue with a rollover I did from my 401k last month. Can you tell me what's going on?
OPS: yes, give me one second to review your account.
...........
OPS: Wow, you hit the jackpot!
Me: Excuse me?
OPS: The account manager has been all over your account. He's got the compliance team looking at it, and legal is now involved. I've never seen a case with this many "higher up's" names on it.
Me: Legal is involved? Should I be concerned? Do I need to involve my own lawyers in this matter?
OPS: No, it's really just on our side. The lawyers are working to see if what we did was legal and how we can legally fix it to perform the transaction you wanted.
Me: So you recognize that there was some kind of error with my transaction?
OPS: I wouldn't say that, but our legal team is working on it. We'll make sure that we're square by you and the law.
Me: Okay ... well the transaction was a month ago, and I've only got a total 60 days to figure this out before the deadlines are hit.
OPS: We're well aware of the deadlines, we'll get it straightened out for you.

I'll update in a month (or hopefully sooner) when this gets figured out *fingers crossed*. I'm becoming more and more glad it was only $1k at stake and not more.

The countdown continues ... T-minus 29 days and counting.

[fodder69]

They obviously got it backwards, but my .02 on the 1.31 is that those are the little transactions they post to verify a bank account before they transfer money to it, which in this case was your Roth IRA and not a bank account.

[seattlecyclone]

My guess is someone pressed some wrong buttons when entering your transactions, but because certain 401(k) transactions aren't supposed to be reversible they're exploring what they can do within the bounds of the law to make it right. Here's hoping everything gets resolved in your favor!

[brooklynguy]

Bearkat, any update?  Hopefully it was as we suspected simply a fuck-up that Vanguard has now un-fucked-up for you.

[bearkat]

Hey thanks for the reminder to update.

Short answer:

You're right. Vanguard screwed up hard and is in the middle of fixing it.

More details:

Vanguard has requested the funds they put into my bank account to be taken back. They will get back the 20% they sent the IRS, and then completely re-do the transaction as if it were Dec 31st all over again (12/31 was the date of the initial transaction). I can only assume this whole process takes a long time as they initially made the request to my bank on 2/3, and still no money has changed hands.

Really only unresolved question in my mind is what Vanguard / IRS will do about my 1099-R that currently (and incorrectly) shows me withdrawing $1k from my pre-tax 401k... I've been waiting to file my taxes until this is resolved.  Any thoughts?

[brooklynguy]

Just make sure they really make you whole; after the dust settles, all the funds in all your accounts should be equal to what they would have equalled  today had the transfers occurred correctly on 12/31 (using 12/31 market values and accounting for market performance since then).

I think Vanguard should issue you a corrected 1099-R reflecting the transactions that should have happened (and will be deemed to have happened by Vanguard after they fix it for you).  They better do it before April 15th.  In any event, hopefully this won't increase your audit risk.

[MrMoogle]

I would request an extension on your taxes now to be safe.  It's free.

[MDM]

I would request an extension on your taxes now to be safe.  It's free.

True - just be sure to understand "that an extension of time to file your return does not grant you any extension of time to pay your tax liability." (from http://www.irs.gov/uac/Extension-of-Time-To-File-Your-Tax-Return)

[MrMoogle]

I would request an extension on your taxes now to be safe.  It's free.

True - just be sure to understand "that an extension of time to file your return does not grant you any extension of time to pay your tax liability." (from http://www.irs.gov/uac/Extension-of-Time-To-File-Your-Tax-Return)

Yeah, that never made sense to me.  I'm overseas, so I don't always get all my paperwork before April 15th.  We get automatic extensions, but somehow I have to know that I'm getting a refund or I pay penalties. 

[bearkat]

To close the loop, IT IS DONE!... Finally.

Yesterday, Vanguard deposited my money in the Roth IRA as if it was done on 12/31/2014 (the original request date) with the 12/31 share price and credited me for the dividends I missed.

Overall it was a very frustrating 6 months. Each operator I spoke with was very nice and polite, but they're basically not empowered to do anything except leave a mmessage for the "account executive" to call me - -  WHO NEVER ACTUALLY CALLED ME ONCE DURING THE ENTIRE SIX MONTH ORDEAL!!

I'm not sure if this is the cost of low fees or just me having less than $200k assets with them. Either way, this took Vanguard down a few notches in my book from god's gift to individual investors to a place that has low fees and good fund options.

Hope this was useful to others considering the Mega Backdoor Roth.

[brooklynguy]

THREE CHEERS!

News that the Supreme Court just handed down its eagerly anticipated decision in the "Obamacare case" and that there's an update in bearkat's mega back door Roth ordeal both hit my inbox at the same time, and (in all seriousness) I chose to focus on the latter first!

[MDM]

To close the loop, IT IS DONE!... Finally.

Thanks for the update and glad to hear that it ended well.

[brooklynguy]

A moral of bearkat's story is not to blindly trust in the competence of financial institutions.

Many of us have a natural tendency to unconsciously assume that the computers and mega-corporations handling our financial affairs are infallible (how many people actually regularly check their account statements, paystubs and tax forms for mistakes?), but, as bearkat's saga illustrates, fuck-ups abound (even at the exalted Big V).

I did a brief stint in the in-house legal department of a major financial institution, and the biggest impression it had on me was to remove my blinders to the capacity of these companies to fuck up, sometimes royally.  These companies process zillions of transactions a second, so even a laudably low fuck-up rate will produce a staggering number of fuck-ups.

Let bearkat's example be lesson to all of us:  always be on your guard against fuck-ups.

[Mississippi Mudstache]

This is an interesting read, and I'm glad to hear it was resolved.

I also did a Mega Backdoor Roth contribution this year, and though the were no fuck-ups on anyone's part except my own, I'd like to relate the story as a warning to others about reading fine print in your 401k.

The saga begins in October of last year. I had just started a new job, and my 401k space was already maxed out for the year after hitting the ceiling early at my old employer. That left me in position to miss out on my new company's 401k match for the last two months of the year.

Fortunately, my new company's 401k allows after-tax contributions, so I realized that I could just contribute the bare minimum (6%) to earn the full match (3%) as an after-tax contribution. So that's what I did. At the end of the year, I had $720 in after-tax contributions and a $360 company match in my 401k. In January, I learned (along with everyone else here) about the IRS's new thumbs up on post-tax 401k-to-Roth-IRA rollovers. Since my 401k plan also allows for in-service rollovers of post-tax contributions, it seemed that all the stars were aligning in my favor.

I called my 401k company to arrange the rollover. They sent me a check for $730.10 (including $10.10 in earnings) and I sent the check straight to Fidelity, after calling them to confirm that I could, indeed, roll the money into my IRA. The $720 went straight in penalty-free, but the $10.10 in earnings will be reported as income for 2015 and taxed this year.

All was good, until about a month after the rollover, when I got a message from our benefits department informing me that my company match for 2014 ($320) was being withdrawn. Apparently, somewhere in our 401k documents is some verbiage that states that if you roll over the funds that triggered the company match, you lose said match. So my stroke of cunning brilliance ended up costing me a few Benjamins :/

Oh well. Won't be an issue for most people, I don't think, but consider yourselves warned!

[bearkat]

All was good, until about a month after the rollover, when I got a message from our benefits department informing me that my company match for 2014 ($320) was being withdrawn. Apparently, somewhere in our 401k documents is some verbiage that states that if you roll over the funds that triggered the company match, you lose said match. So my stroke of cunning brilliance ended up costing me a few Benjamins :/

Oh well. Won't be an issue for most people, I don't think, but consider yourselves warned!

Great reminder! Sometimes even when it seems like the stars are perfectly aligned, BOOM supernova, and it all gets blown to shit.

You oughta look out.

[Trudie]

So, I just got off the phone with Vanguard to do my first in-service distribution.  They said they'd have to mail me paperwork, that I would have to fill out and mail back.  They weren't allowed to just do it over the phone.  And they weren't allowed to email me the forms.

Next, I'll hear that they will want it sent by smoke signals...

Sigh.

This is required by many providers if you are married.  I will have to fill out paperwork that they send me, then notarize and send it in.