How to treat a wrong rollover into my Roth IRA

[mpapadop]

Hello, I recently made wrongly a request for excess contribution removal from my Roth IRA account.

I got confused about the Roth IRA and Roth 401k contribution limits, since I thought they share the same max limit of $6000 (in 2022).

Since in 2022 I had contributed in both my Roth IRA and Roth 401k plans, I thought I contributed more than $6000 totally so I requested an excess contribution removal of 1901.81 from my Roth IRA and for that I will receive a 1099-R in 2026.

This amount was transfered as in kind shares into my brokerage account (instead of cash) so I received 1.638 shres of VFIAX ($901.80) and 23.414 shares of VTWAX ($1,000.01).

When I realized that I had never overcontributed since Roth 401k and Roth IRA are different, I requested for a rollover to my Roth IRA. However the shares transfered were not the same, nor the amount of money. So Vanguard rollover back 1.871 shares of VFIAX ($1,000.42) and 21.35 of VTWAX ($901.82) with a total amount increased $0.43 (they transferred totally $1,902.24 instead $1,901.81).

Later when discussing with vanguard agents over phone, they told me that because the previous distribution was an excess contribution, IRS doesnt allow rollover (even if there was really never an excess contribution into my Roth IRA) and I had to remove again the money they rollover. So I did but again they didnt remove exact amount of shares, and they distributed 1.83 shares of VFIAX equally to $889.78 due to market fluctuations (instead of 1.871 they rollover) and 20.833 shares of VTWAX equally to $802.07 (instead of 21.35 share they rollover). They nnumber of shares are close to what they rollover but not exact amount.

So how can I treat this all this confusion in the upcoming Tax return considering that I never really overcontributed into my Roth IRA? For the above transactions I will remove a 1099-R for the 2 distributions and the rollover, showing different amounts:

a. Should I sell some shares and ask them to remove the exact remainng cash amount of the amount rolled over from my settlement account?
b. Since I never over-contributed , should I leave this as it is and the IRS will see 2 distributions and one rollover with extra 0.43$? It seems that Vanguard is doing mistakes for any request I'm doing.
c. Any other option?

[RobertB4444]

You should enter them as they are.  The IRS requires that all of the amounts on your 1099-R (and all of your forms) get rounded to the nearest dollar.  So that $0.43 isn't going to make a difference.  It will show as a rollover and then a withdrawal of excess contribution all of which will be non-taxable because they are Roths.  

@mpapadop 

[dmertz]

This is a real mess of errors upon errors upon errors.  For what it's worth, Vanguard did not do you any favors by allowing any of the original distribution to be deposited back into the Roth IRA.

As Vanguard ultimately indicated, a return of contribution is irrevocable, so depositing those shares back into the Roth IRA as a rollover was not permitted.  If done before April 15, 2025, you could have made a new cash contribution of $1,901.81, but it's too late to do that now.

Since the amount requested to be returned an the share value distributed are essentially the same (the difference rounds to zero), apparently Vanguard will be reporting no taxable investment investment gain in box 2a of the Form 1099-R that reports the return of the $1901.81 contribution.

I can only guess at how Vanguard will report the second distribution.  Because the deposit constituted an impermissible non-cash contribution, they probably should have distributed the exact same shares.  However, that would have resulted in a reporting problem for them since they would almost certainly have to treat the deposit as having been made in cash and a subsequent purchase of those shares.  If they did that, they would have to calculate the attributable net income and distribute an adjusted amount.  A better approach by Vanguard might have been to treat the deposit as a bookkeeping error and just taking the exact same shares back out of the Roth IRA, treating them as never having been deposited.