Reverse rollover at Vanguard

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Topic Author
401qua
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Joined: Mon Apr 11, 2022 11:52 pm

Reverse rollover at Vanguard

Post by 401qua »

I have a traditional IRA at Vanguard. My new employer happens to manage my 401k through Vanguard. I would like to move the trad IRA assets into the 401k to allow me to do a backdoor Roth IRA each year without being subject to the pro rata rule.

All fine so far.

The problem is, I spent 90 minutes on the phone with Vanguard today trying to make this happen, and didn't get anywhere. I answered the prompts to talk to someone about my 401k (figuring it's one of the two accounts involved?) but that person redirected me to the regular personal number. The person I spoke to there directed my back to the 401k queue, but told me to ask for "retirement" this time. After 60 minutes on hold again I gave up.

My question is: before I waste another hour, does anyone know what magic words or what phone number I need to call to move my Vanguard trad IRA balance into the before tax part of my Vanguard 401k. I don't mind if they mail me a check and I have to mail it back to them. I don't mind if I spend a month out of the market because the left hand and the right hand don't talk to each other at Vanguard. I just want to get the process underway.

Pointers welcome!
Lionel Hutz
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Joined: Sat Jan 30, 2021 12:18 pm

Re: Reverse rollover at Vanguard

Post by Lionel Hutz »

You’re doing everything right, it’s a poor process between two sides of the business that aren’t in sync.

First, still initiate the “rollover into” the 401k on the 401k side. While they can’t “pull” the money from the IRA, you still definitely want a form generated on their end so they’re prepared to receive the funds (you can maybe hold off on this step if you like for now, but still complete it at some point).

Next, call the IRA side and request the IRA distribution form, because you want to rollover FROM your IRA TO your 401k, and as you’re already aware the IRA must “push” the funds to the 401k.

Have some patience with the first rep. First, they may not be trained on this and might tell you you’re mistaken (often they go “no sir a 401k rolls to an IRA not the other way around” :happy ). Second, this request is not super common even for those trained on it, so since it’s not a fairly regular part of their daily/weekly tasks they’ll be slower on the uptake.

Once you get to the right senior person or convince the rep to go on hold and research this, they should come back with the form and can email it to you.

Once you have the form, should be a piece of cake. There ought to be a box to “directly rollover” the IRA, *not take a taxable distribution.

When completed, they’ll issue the check payable to: [401k trustee] FBO [your name] and the 401k should deposit it. The IRA will issue you a 1099-R code G next year, the 401k will issue a confirmation statement but no 5498.

Good luck!
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Duckie
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Re: Reverse rollover at Vanguard

Post by Duckie »

401qua wrote: Mon Apr 11, 2022 11:59 pm I have a traditional IRA at Vanguard. My new employer happens to manage my 401k through Vanguard. I would like to move the trad IRA assets into the 401k to allow me to do a backdoor Roth IRA each year without being subject to the pro rata rule.
Although 401k plans are allowed to take incoming rollovers from IRAs they are not required to do so. Have you already checked to see if this is specifically allowed in your plan?
livesoft
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Re: Reverse rollover at Vanguard

Post by livesoft »

Duckie wrote: Tue Apr 12, 2022 5:12 pmAlthough 401k plans are allowed to take incoming rollovers from IRAs they are not required to do so. Have you already checked to see if this is specifically allowed in your plan?
This is important. And it is less likely to be allowed than you might think. Also finding someone responsible for administering your employer-plan that can answer this question is going to be harder than you think.
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Re: Reverse rollover at Vanguard

Post by placeholder »

Plans differ but megacorp had online instructions for initiating a rollover into the plan so have you checked for that?
PersonalFinanceJam
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Re: Reverse rollover at Vanguard

Post by PersonalFinanceJam »

You can actually find the form yourself. Log into your vanguard account and go to forms. Search for IRA and find the form for VBA IRA distribution. You can fill it out online and one of the options is roll over to a qualified plan. You will also want to start the roll over process on the Vanguard 401k side. You walk it right up to the point of “receiving the check”. Apparently there is a batch process which runs which will match up both sides. Basically the IRA distribution process will look for an open roll over for you in the designated 401k plan and then distribute it there even though it may appear it will mail you a check.

Anyway, the above is what was explained to me by a Vanguard rep about 2 years ago when I was having the same problems you were. It finally resulted in a 4 way call between someone from the 401k side, the IRA side, whoever actually knew what to do, and myself. Unfortunately they said I had to fill out the form, they couldn’t just do it for me. Contrast this with my wife who did the same thing with another well known provider discussed all the time here where it was a single call and completely done.

As others said, you do need to verify that you can actually do this. Not all 401k will accept a roll over from an IRA. Some will only accept it from an IRA which resulted from a distribution from a previous qualified plan. They might require some crazy documentation as well.
Lionel Hutz
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Re: Reverse rollover at Vanguard

Post by Lionel Hutz »

Great points above about confirming if your 401k will even accept the IRA money (not mechanically, legally). I missed that earlier.

To confirm that, call the 401k group or better yet if able, find your Summary Plan Description. It will probably mention Conduit/Rollover IRAs and then Traditional IRAs. So if you see it mentions Traditional, you're in the clear.

IRS had changed this to allow Traditional IRAs too, but not all plans have (or are required to) adopt this provision.

And yes the process of the reverse rollover at Vanguard is quite archaic, unfortunately, but it can be done!
Topic Author
401qua
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Joined: Mon Apr 11, 2022 11:52 pm

Re: Reverse rollover at Vanguard

Post by 401qua »

Thanks to all for flagging up something I glossed over in my original question. I believe what I want to do is permitted by the terms of my employer plan. The plan summary says:
The Plan will accept a Participant "rollover" contribution of the portion of a distribution from a traditional IRA that is eligible to be rolled over and would otherwise be includible in gross income. Rollovers from Roth IRAs or a Coverdell Education Savings Account (formerly known as an Education IRA) are not permitted because they are not traditional IRAs. A rollover from a SIMPLE IRA is allowed if the amounts are rolled over after the Participant has been in the SIMPLE IRA for at least two years.
Not 100% sure what "would otherwise be includible in gross income" means, but I think this means "yes, we'll take your trad IRA rollover". I will call tomorrow to double check this though.

And thank you very much in particular to PersonalFinanceJam for walking me through the the answer to my original question.

One extra wrinkle, which may be obvious to everyone, but was not obvious to me: you can only rollover the assets that are in the settlement fund. In other words, if you want to roll everything in the IRA over, you have to sell everything in the IRA first.
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Re: Reverse rollover at Vanguard

Post by placeholder »

401qua wrote: Fri Apr 15, 2022 12:25 am
Not 100% sure what "would otherwise be includible in gross income" means
Pretax.
Topic Author
401qua
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Re: Reverse rollover at Vanguard

Post by 401qua »

So "traditional IRA that is eligible to be rolled over and would otherwise be includible in gross income" effectively means "good old regular deductible contributions to a traditional IRA"?
PersonalFinanceJam
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Re: Reverse rollover at Vanguard

Post by PersonalFinanceJam »

401qua wrote: Fri Apr 15, 2022 12:19 pm So "traditional IRA that is eligible to be rolled over and would otherwise be includible in gross income" effectively means "good old regular deductible contributions to a traditional IRA"?
Yes or a regular roll over IRA which only contained pre-tax contributions from the former plan. The point of the quoted section you had would seem to be the plan is only accepting money which would be considered pre-tax.
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Re: Reverse rollover at Vanguard

Post by placeholder »

401qua wrote: Fri Apr 15, 2022 12:19 pm So "traditional IRA that is eligible to be rolled over and would otherwise be includible in gross income" effectively means "good old regular deductible contributions to a traditional IRA"?
Not just contributions but taxable earnings or growth as well.
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Re: Reverse rollover at Vanguard

Post by placeholder »

PersonalFinanceJam wrote: Fri Apr 15, 2022 4:06 pm Yes or a regular roll over IRA which only contained pre-tax contributions from the former plan. The point of the quoted section you had would seem to be the plan is only accepting money which would be considered pre-tax.
Which is good because that's what the law requires.
wrongfunds
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Re: Reverse rollover at Vanguard

Post by wrongfunds »

PersonalFinanceJam wrote: Tue Apr 12, 2022 5:45 pm You can actually find the form yourself. Log into your vanguard account and go to forms. Search for IRA and find the form for VBA IRA distribution. You can fill it out online and one of the options is roll over to a qualified plan. You will also want to start the roll over process on the Vanguard 401k side. You walk it right up to the point of “receiving the check”. Apparently there is a batch process which runs which will match up both sides. Basically the IRA distribution process will look for an open roll over for you in the designated 401k plan and then distribute it there even though it may appear it will mail you a check.

Anyway, the above is what was explained to me by a Vanguard rep about 2 years ago when I was having the same problems you were. It finally resulted in a 4 way call between someone from the 401k side, the IRA side, whoever actually knew what to do, and myself. Unfortunately they said I had to fill out the form, they couldn’t just do it for me. Contrast this with my wife who did the same thing with another well known provider discussed all the time here where it was a single call and completely done.

As others said, you do need to verify that you can actually do this. Not all 401k will accept a roll over from an IRA. Some will only accept it from an IRA which resulted from a distribution from a previous qualified plan. They might require some crazy documentation as well.
The last time I had this conversation with the "another well known provider discussed all the time here", I was told that the two sides don't talk and I had to take delivery of paper check via snail mail and then repost it back to the other side via snail mail. I stopped initiating.
Topic Author
401qua
Posts: 4
Joined: Mon Apr 11, 2022 11:52 pm

Re: Reverse rollover at Vanguard

Post by 401qua »

PersonalFinanceJam wrote: Tue Apr 12, 2022 5:45 pm You can actually find the form yourself. Log into your vanguard account and go to forms. Search for IRA and find the form for VBA IRA distribution. You can fill it out online and one of the options is roll over to a qualified plan. You will also want to start the roll over process on the Vanguard 401k side. You walk it right up to the point of “receiving the check”. Apparently there is a batch process which runs which will match up both sides. Basically the IRA distribution process will look for an open roll over for you in the designated 401k plan and then distribute it there even though it may appear it will mail you a check.
Just following up on this to confirm that this worked, i.e. I informed the 401k side about the incoming rollover, filled out the VBA IRA form, which asked where to mail the check, and the money showed up in the 401k a couple of days later, even though I'd told them to mail the check to my home.
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Re: Reverse rollover at Vanguard

Post by placeholder »

When I did a reverse rollover many years ago from wells fargo they ignored all the check instructions and did an electronic transfer to the 401k.
sailaway
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Re: Reverse rollover at Vanguard

Post by sailaway »

DH did a reverse rollover at Fidelity last year. He had two representatives chatting with each other and had to use both the app and website to get all of the paperwork done. Something about this process. Either it doesn't happen often enough to streamline or there are too many hoops to jump through or both.
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