Seeking advice regarding a botched IRA-to-i401k direct rollover by Vanguard. In Dec 2021, I effected a rollover from my (entirely pre-tax) SEP-IRA to an i401k, both at Vanguard.
Only recently while working on my taxes did I look closely at my 1099-R, and saw to my disbelief that VG had marked all the rollover funds from the IRA as “Taxable amount”, with 10% federal tax withheld.
They acknowledged the error and sent me an updated form 1099-R with taxable amounts as 0, but with the 10% withholding still intact. Vanguard claims that the withheld amount has been already sent to IRS and there is nothing they can do about it.
I can presumably get the money back as a tax refund, but I am concerned about the following:
1. This is, in effect, an early distribution from my IRA (isn't it? I am indeed below 59.5 years). I didn’t want it or ask for it, but the IRS doesn’t know that. Is there a way to explain that this was due to an error on the custodian's part? Does the IRS care? What reporting is needed, and can I avoid the penalty?
2. I would very much like to return that money to my retirement accounts, and was told that the way to do this is through a process called "self-certification". Does this future intent have any bearing on anything to be done while filing taxes right now?
