@Hippo24
Your situation is exactly the same as in the example you quoted. Because the trustee made a mistake, this situation is treated for tax purposes the same as if you withdrew $8000 in the form of a check, the trustee withheld $1600, you deposited the $6400 check with a new plan, and failed to make up the $1600 difference. That $1600 is taxable income to you, plus a 10% penalty if you are under age 59-1/2. Because you would have paid income tax on the conversion anyway, the extra cost to you because of the mistake is a $160 penalty, plus the fact that you have $1600 cash in pocket instead of in a roth account for the future.
This is an interesting legal situation. Arguably, the company owes you the 10% penalty ($160) as compensation for their mistake. On the other hand, if you knew about the $1600 withholding before the end of the 60 day rollover window, you did have the opportunity of depositing an extra $1600 from other funds, and the withholding would have paid the taxes instead of needing to come up with the extra cash during tax season. So it's not clear how much responsibility each side has, and it would cost well more than $160 to litigate it. At least it is a learning experience, and you can make sure this doesn't happen again.
