Getting a vanguard authorized signature/pension refund rollover question

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dalbright
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Getting a vanguard authorized signature/pension refund rollover question

Post by dalbright »

Apparently my wife's IL teachers pension had a ERO Sunset Refund from 2016 (about 1800 taxable) I found while exploring her account. If you do nothing you gain no interest and just get the same check when you retire. It appears that we can either roll it over to an eligible account or get the check with a 20% withholding. I would opt for the direct rollover to vanguard but the end of the form requests an authorized signature of the financial organization or retirement plan...Is this something easy/possible to obtain from vanguard? I believe I recall others getting checks for a normal retirement account rollover sent to them and then self depositing to Vanguard as well? We would be looking to place this into an IRA (traditional or roth, but roth preferred). Is there an ideal way to accomplish this? Thanks in advance for your help!
Silk McCue
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Re: Getting a vanguard authorized signature/pension refund rollover question

Post by Silk McCue »

The simplest approach is to do an indirect rollover to Vanguard. This can only occur once every year (365 days) per the IRS. Best if they could ACH the funds to a bank account and then have VG pull the funds via ACH. If they have to send you a check then you just deposit it in the bank and have VG pull it. If they insist on withholding taxes you can add that amount back that you transfer to VG to make it whole. These are tax deferred funds so taxes will be due if you want to convert to Roth. My experience with VG is that they recommended that we pull the funds into an IRA and then convert to Roth from a paper trail perspective.

We just did this a couple weeks back with $55k for my wife as we wanted to avoid having a check floating around waiting for USPS to deliver it to Vanguard.

Cheers
Topic Author
dalbright
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Re: Getting a vanguard authorized signature/pension refund rollover question

Post by dalbright »

Thanks! I'm reaching out to the teacher pension group to see if we can proceed without a signature from vanguard first and go with a direct rollover. Just to help with my understanding of how to complete the indirect option if we are forced that route (no ACH, just paper check): Rough math of 1800 original, being reduced to 1440 (360 taxes taken out). I then cash that check and then from the Vanguard side request 1800 (add tax back). It is then preferable to add the extra step of putting into the traditional IRA first and then moving it to a roth IRA rather than direct to the roth? Come tax day i then pay the income tax on the 1800 (with the 360 already paid being credited in for taxes).

At the beginning of the year I have been filling our traditional IRA and then converting to Roth the following day for the backdoor both approach for IL to save on IL state income tax. I'm a novice at understanding if this would limit this with the 1 rollover a year rule? This is a case of the more i searched the topic the more my head was spinning!
Silk McCue
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Re: Getting a vanguard authorized signature/pension refund rollover question

Post by Silk McCue »

Your first paragraph above is complete and accurate based upon what VG recommended to me going to the IRA first. The two step tango leaves a nice paper trail at the very least. Please make certain to note that the 1 per year indirect rollover is a full and complete year.

The Backdoor Roth is in no way shape or form an indirect rollover. It is a contribution followed by a conversion.

Regardless of how you perform the rollover just take extra care to make certain it is properly accounted for on your tax return.

Cheers
Topic Author
dalbright
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Re: Getting a vanguard authorized signature/pension refund rollover question

Post by dalbright »

Silk McCue wrote: Thu Sep 16, 2021 8:20 am Your first paragraph above is complete and accurate based upon what VG recommended to me going to the IRA first. The two step tango leaves a nice paper trail at the very least. Please make certain to note that the 1 per year indirect rollover is a full and complete year.

The Backdoor Roth is in no way shape or form an indirect rollover. It is a contribution followed by a conversion.

Regardless of how you perform the rollover just take extra care to make certain it is properly accounted for on your tax return.

Cheers
Thank you very much for your prompt help! Love BH :)
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CRC_Volunteer
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Re: Getting a vanguard authorized signature/pension refund rollover question

Post by CRC_Volunteer »

I just went thru this, and instead of having the check floating within USPS, my plan administrator had to option to wire the money to VG. Contacted VG and within 002 days it was in my account.
"Let me explain. No, there is too much. Let me sum up." (Inigo Montoya) | | 65/30/05 | 53% VTSAX | 12% VTIAX | 30% VAIPX | 5% CASH
Silk McCue
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Re: Getting a vanguard authorized signature/pension refund rollover question

Post by Silk McCue »

dalbright wrote: Thu Sep 16, 2021 8:25 am

Thank you very much for your prompt help! Love BH :)
Happy to help. I’m just sitting in a beach chair enjoying the the Gulf of Mexico while having a great cup of coffee.

Cheers
Silk McCue
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Re: Getting a vanguard authorized signature/pension refund rollover question

Post by Silk McCue »

BMWrider1986 wrote: Thu Sep 16, 2021 8:29 am I just went thru this, and instead of having the check floating within USPS, my plan administrator had to option to wire the money to VG. Contacted VG and within 002 days it was in my account.
This is a great option if available for the OP. My wife’s 457 plan had no such option.

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Topic Author
dalbright
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Re: Getting a vanguard authorized signature/pension refund rollover question

Post by dalbright »

BMWrider1986 wrote: Thu Sep 16, 2021 8:29 am I just went thru this, and instead of having the check floating within USPS, my plan administrator had to option to wire the money to VG. Contacted VG and within 002 days it was in my account.
Wow that's great! I've never had a rollover from a different plan before and this will be our families second this month! Quite the learning curve/stress the first time! My mega backdoor went through the mail from Prudential to Vanguard and took one week. The IL teachers pension only uses snail mail for this program I guess (specifically notes this is the only way). It blows me away that they could end a program and just keep the money not earning interest until retirement.
LongMoney
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Re: Getting a vanguard authorized signature/pension refund rollover question

Post by LongMoney »

I just did this last week. It can all be done on your vanguard online account and a little back and forth with a few different parties.

call the pension holder, ask for rollover paperwork. They will likely send two pieces of paper in the paper mail. I had to sign my paperwork in front of a notary. One piece of paper goes back to the pension holder. The other papee goes to vanguard. They will need to fill out one section of the form; from there vanguard will mail it directly back to the pension holder. The pension holder will move funds directly to the vanguard account you indicated via online application.

There are other ways of going about it, but a direct rollover will be the simplest hands-off approach. The pension plan will move the money directly to vanguard without you touching it. I wouldn't recommend taking a 20% hit for a personal check bc you're squandering an investment opportunity. Whether you move it to Roth or traditional IRA will have tax implications and you'll have to consider it for yourself based on your tax bracket and future retirement plans.
"A man's worth is no greater than his ambitions."
Silk McCue
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Re: Getting a vanguard authorized signature/pension refund rollover question

Post by Silk McCue »

LongMoney wrote: Thu Sep 16, 2021 10:40 am
I wouldn't recommend taking a 20% hit for a personal check bc you're squandering an investment opportunity.
They don’t have to “squander” the 20%. Those withheld dollars can be replaced in an indirect rollover.

Welcome to Bogleheads!

Cheers
LongMoney
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Re: Getting a vanguard authorized signature/pension refund rollover question

Post by LongMoney »

Silk McCue wrote: Thu Sep 16, 2021 11:03 am
LongMoney wrote: Thu Sep 16, 2021 10:40 am
I wouldn't recommend taking a 20% hit for a personal check bc you're squandering an investment opportunity.
They don’t have to “squander” the 20%. Those withheld dollars can be replaced in an indirect rollover.

Welcome to Bogleheads!

Cheers
Hello,
I understand what you're saying but in addition to the 20% withholding, there's an additional 10+% early withdrawal fee if the person is not over age 59 when a check is issued and not placed into a retirement account within 60 days. I am a teacher in Ohio, for me it's a 10% fee plus 20% withholding. not sure what the fee is for the poster in the their state and plan. Bottom line is that it's wasting earned income to cash out the pension unless they are at retirement age
"A man's worth is no greater than his ambitions."
Silk McCue
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Re: Getting a vanguard authorized signature/pension refund rollover question

Post by Silk McCue »

LongMoney wrote: Thu Sep 16, 2021 11:38 am
Silk McCue wrote: Thu Sep 16, 2021 11:03 am
LongMoney wrote: Thu Sep 16, 2021 10:40 am
I wouldn't recommend taking a 20% hit for a personal check bc you're squandering an investment opportunity.
They don’t have to “squander” the 20%. Those withheld dollars can be replaced in an indirect rollover.

Welcome to Bogleheads!

Cheers
Hello,
I understand what you're saying but in addition to the 20% withholding, there's an additional 10+% early withdrawal fee if the person is not over age 59 when a check is issued and not placed into a retirement account within 60 days. I am a teacher in Ohio, for me it's a 10% fee plus 20% withholding. not sure what the fee is for the poster in the their state and plan. Bottom line is that it's wasting earned income to cash out the pension unless they are at retirement age
It’s $1800 that is never going to grow per the OP. Rolling it will allow it to be invested and grow. They are rolling into an IRA so early withdrawal penalty is a mute point.

I’m not certain how this is “wasting earned income”. It seems to be a prudent move to me.

Cheers
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Eagle33
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Re: Getting a vanguard authorized signature/pension refund rollover question

Post by Eagle33 »

Another option is for the check to be addressed to <new institution> FBO <wife's name>. This will avoid the 20% withholding.
placeholder
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Re: Getting a vanguard authorized signature/pension refund rollover question

Post by placeholder »

Silk McCue wrote: Thu Sep 16, 2021 7:30 am The simplest approach is to do an indirect rollover to Vanguard. This can only occur once every year (365 days) per the IRS.
This is incorrect as the one rollover rule only applies to ones from an ira to another ira of like kind.
Silk McCue
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Re: Getting a vanguard authorized signature/pension refund rollover question

Post by Silk McCue »

placeholder wrote: Fri Sep 17, 2021 1:21 am
Silk McCue wrote: Thu Sep 16, 2021 7:30 am The simplest approach is to do an indirect rollover to Vanguard. This can only occur once every year (365 days) per the IRS.
This is incorrect as the one rollover rule only applies to ones from an ira to another ira of like kind.
Thanks. Evidently the rules are much more complex than I knew.

https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

Cheers
placeholder
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Re: Getting a vanguard authorized signature/pension refund rollover question

Post by placeholder »

Actually they are relatively simple because unless it's a 60 day rollover from a tira to tira or roth ira to roth ira then it's not under the one rollover rule.
Silk McCue
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Re: Getting a vanguard authorized signature/pension refund rollover question

Post by Silk McCue »

placeholder wrote: Fri Sep 17, 2021 6:45 pm Actually they are relatively simple because unless it's a 60 day rollover from a tira to tira or roth ira to roth ira then it's not under the one rollover rule.
There is much more covered in the chart such as the Simple IRA peculiarities. Let’s not nitpick.

Cheers
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