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taylor2016

Inherited 403(b) IRA Rollover Distribution

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Hi all,

I  tried searching this issue but haven't had much luck.

I inherited a 403(b) from my mother when she passed away.

I chose to do a rollover into an IRA when I inherited it.

It was my understanding that this rollover would have been into an inherited IRA requiring minimum distributions and not held to early distribution limits even though I'm only 35 due to it being inherited.

I took a distribution in 2020 and it was marked on the 1099 as an early distribution.  

I've been trying to get vanguard to fix this issue but have been sent around in circles and they keep telling me to talk to a tax professional even though it seems to me as it was marked incorrectly.  Vanguard is claiming no wrongdoing here and I get passed back and forth between the vanguard 403(b) department and IRA department both claiming maybe the other messed something up.

Isn't it true that when I inherited the 403(b) and it rolled over into an IRA it should have been an inherited IRA and I would not be charged the extra 10% for early distribution?  I didn't think it was even allowed to rollover an inherited 403(b) into my own IRA account instead of an inherited IRA.

Thanks for the help.

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Taylor 2016

Quote

Isn't it true that when I inherited the 403(b) and it rolled over into an IRA it should have been an inherited IRA and I would not be charged the extra 10% for early distribution?  I didn't think it was even allowed to rollover an inherited 403(b) into my own IRA account instead of an inherited IRA.

I wouldn't think you would be charged 10% if it stayed in an inherited IRA account.

I'm sorry you are going through this,  but RELAX .I had Vanguard mess up for me years ago but I can't remember the issue exactly but they did mark something incorrectly and I didn't know it until the end of that year when I received the tax form.  It was infuriating to get the error reversed.I had a few people  at Vanguard who could not help me but eventually I got someone who understood the issue and they were able to fix it.  . Have you thought about calling Vanguard retirement services directly (not Newport) and asking for a senior specialist ?

You could also see an accountant and have them review the issue and intercede on your behalf. Or even call the IRS  Tax laws are complex and changing and not everyone is on top of it all. I'm certainly not. It would be best for me  not to give advice on something I don't know enough about. 

I found this online but don't know if this is helpful  https://weabenefits.com/resource/retirement-forms-and-brochures/403b-and-ira-beneficiary-information-for-nonspouses-trusts-or-other-entities/

or maybe this https://www.marketwatch.com/story/what-are-the-rules-for-inheriting-a-403b-2019-04-19/

 

Be persistent.Let us know how things turn out for you as your situation may help others.

Tony

 

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On 4/13/2021 at 10:25 AM, taylor2016 said:

 

Isn't it true that when I inherited the 403(b) and it rolled over into an IRA it should have been an inherited IRA and I would not be charged the extra 10% for early distribution?  I didn't think it was even allowed to rollover an inherited 403(b) into my own IRA account instead of an inherited IRA.

 

I think your understanding that your mother's 403b account can't be rolled into your personal IRA is correct, and that it should have been rolled into an inherited IRA. Apparently the IRA isn't titled as an inherited IRA for your benefit (FOB)? It's unfortunate that this wasn't noticed and corrected immediately, before you took a distribution. It seems like both Vanguard departments, 403b and IRA, are at fault. 

The experts on this sort of problem are on the Boglehead forum. Alan S. and/or Spirit Rider are often asked for advice by professionals on other forums. Their knowledge of the IRS regulations is encyclopedic. https://www.bogleheads.org/forum/viewforum.php?f=1

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I think it's a simple matter of having the inherited IRA re-characterized as such and  confirmation paperwork sent to you and the IRS..  The 10% can then be restored to your account .Vanguard should be able to do that for you if you can get a knowledgable rep.  If you can't get Vanguard to fix it than I would definitely take Krow's advice and post it on Boglehead but I would not lose your mind over it because it should be Vanguard's problem to fix.

. Did your  Mom's 403b plan allow you to transfer into an IRA?  (Most plans allow this. If your's doesn't could that have triggered the 10%?

Something went wrong somewhere.  Hope to hear how your problem is resolved.

 

Tony

 

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Just pitching in here to endorse Krow36's recommendation of the Bogleheads forum.  It's a great resource.  Some of the folks who respond there are genuine tax specialists. 

The IRS once sent me a scary letter claiming, to my astonishment, that I owed a five-figure sum on a previous year's return.   It turned out that this was because of an IRA rollover that had been mischaracterized by a broker as a distribution.  The experts at Bogleheads talked me through it, told me what documentation I needed to gather and what language to use to communicate (by mail) with the IRS.  I mailed the recommended letter and documentation and the IRS wrote back declaring the matter resolved and that I owed zero. 

 You may end up hiring someone to help with this, but I'd definitely go to the Bogleheads first. Lay out as many specifics of your situation as possible; they'll ask the right questions and give you good advice.

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Thanks all for the great advice.

I'm supposed to hear back from vanguard soon as they're looking into it.

It seems as though IRA and 403(b) is two completely separate places at vanguard.  When my mom passed away I inherited the 403(b) and filled out paperwork with the 403(b) department to roll it over into an IRA.  This should have been marked as an inherited IRA when it was rolled over from everything I can see anyway but instead the IRA department just started an IRA in my name with the full amount inhereted and never issued a 1099 or anything that year.  I probably should have paid closer attention to what they were naming things but just assumed vanguard knew the rules and were doing things correctly.

Hopefully vanguard figures it out but honestly I don't have much hope just due to the feeling that vanguard doesn't even seem to know the rules themselves when speaking to them over the phone.

I'll for sure reach out to the other forum after I hear back from vanguard if I'm still struggling to get it straight.  Thanks for all the help!

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13 hours ago, taylor2016 said:

Hopefully vanguard figures it out but honestly I don't have much hope just due to the feeling that vanguard doesn't even seem to know the rules themselves when speaking to them over the phone.

 

I think Vanguard will get it right.  Sounds like a box marked inherited 403b  or inherited IRA was not checked or it was missed.They can retrace their steps and see where the error was made. I have faith they will come through for you. Try and stay connected to the same  contact person  by name and ask for that person when you call for updates. Sometime too many people get involved and that causes additional confusion because you have to re-explain the situation.  I never used to get the same person twice when I use to call. Some reps seem more knowledgeable than others . You just have to get the right person. If you don't get a resolution I would write the  Vanguard CEO a certified letter explaining your situation and CC ing a copy to the IRS.

 

13 hours ago, taylor2016 said:

It seems as though IRA and 403(b) is two completely separate places at vanguard. 

Yes they actually are  separate and sometimes that's the problem. Vanguard lets another organization handle their 403b accounts and my past experience with the 403b unit was not positive. But in all fairness that was in the early days of the change.   Have Faith. it can and will be corrected. Unfortunately you may have to pull a few hairs out while you wait in frustration. Let us know how this resolves itself.

Regards

Tony

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