A Vanguard 401k debacle - any way to fix it?

[Slav4ikMD]

Need some advice here.  Long story short:  filed 2016 taxes, joined with my wife, my 401k stuff was all set, for her we needed to still contribute a certain amount and it was already approaching mid-April.  Couldn't do it online as we forgot the password, it got locked, they couldn't fix it and said they were too busy to work it out now, said to send the check by mail.  Sent the check, certified mail with return receipt, have proof that they got it before the deadline.  Fast forward a few days, turns out that in the letter to them we forgot to indicate how to allocate those funds specifically (totally our mistake of course).  They did not call us to ask, 3 weeks later just returned the check with a letter, which said to call them as they need to clarify the info.  Called them right away, and they are saying they will NOT be able to do anything at this point as it is past the deadline.  Asked to speak to the supervisor, they refused, pretty rudely saying "they will just tell you the same thing."

So I totally get that this is our fault as we a) waiting till late minute and b) in a hurry forgot to say how we want funds allocated.  BUT, given that they got the check before the deadline, do we have a leg to stand on in this argument?  How "serious" is the deadline?  Do you think legally Vanguard can have some flexibility here or it is what it is and we now need to deal with the IRS to adjust something?  This issue is totally new to me, and I tried to google it and couldn't find anything.

If this truly can't be resolved, how do I handle it with the IRS, as we already did not pay taxes on that amount and have filed our taxes.  (I have not yet asked our CPA, hoping to figure it out with Vanguard first).

Thanks!

[Dreamgiver]

As far as I know the deadline is not negotiable, it is what it is. You might need to amend your return.

Moving forward I'd encourage you, if you can, to front load your contributions and be done the first few months of the year. This way you also get an extra year of growth on the money.

[ITEngineer]

Sorry but you need to amend your tax return. I wish there was good news or a better way.

Assuming you make roughly the same each month, I would recommend making month contributions and if there is a 'top up' at the end of the year then so be it, but that would get you 80-90% there. If your income fluctuates, make quarterly contributions. But don't wait till April 2017 for FY 2016 contribution. I'd take this one as a 'lesson learned' and move on. You'll be fine.

I also recommend using Keepass (http://keepass.info/) for storing all your passwords. That way you can have a strong unique password for each account you own that is generated by the tool and you only have to remember having one master password. There are apps for IOS/Android so you can us it on your phone. I've gotten my wife to use it so we know where everything is at all times. And it's free.

[jfoxcpacfp]

First, try to get the IRS to correct the situation by filing a Form 4852. You will need to contact the IRS and explain what happened and why you should be allowed to report the timely contribution. The IRS then contacts the issuer/custodian and works it out with them.

Coincidentally, we are working through this process with another client (from this forum) whose issuer made a mistake. Long story short, we believe the IRS is going to get it corrected. There is NO GUARANTEE that this will work, but it is definitely worth trying - what have you got to lose?

[Slav4ikMD]

Thanks guys. Yes lesson learned and I do know how to avoid this going forward. BUT - what i still don't understand is why did Vanguard say they can deposit funds after 4/18 as long as my letter with the check is postmarked by the date, which it was, but are now saying they can't deposit it. What's the difference between 4/19 and 5/12? Plus in their letter dated early May they say call us we need more info to deposit the check. So what I am asking is whether they were wrong initially or are they wrong now, as what they are saying is contradictory. Basically can they legally still make the contribution for me today? If not, case closed, but then I will be discussing with them why they misinformed me in April.

[spiritrider]

I realize it will not help you now, but filing an extension is always your friend.

Most people don't realize it, but many times it is advantageous to file an extension even if you intend to file on time. Once you file that extension it extends the contribution deadline until October regardless when you actually file.

[Slav4ikMD]

Makes sense.  But there is no way to ask for an extension after the fact, correct?  Only an amendment I assume?  =

Thinking about this further, I still don't understand why Vanguard could not put the money into the 401k without allocating it into a specific fund and/or just calling us to ask - sounds like a sensible thing to do.  I am also not convinced that they lack the authority to do this now - will need to follow up with them and speak to someone else.

[q-school]

just chalk it up.  you are going to make worse mistakes in the future.  

i have no idea on what the answer is to your question, but it seems if the IRS opened it up to you, then anyone could claim the same.

you are asking why some lowly paid employee at Vanguard told you something which may or may not be accurate?

 

spiritrider-thanks.  did not know that about extensions.

[Slav4ikMD]

"but it seems if the IRS opened it up to you, then anyone could claim the same" - What do you mean by that?

[q-school]

Sorry for the lack of clarity. While I'm sure your explanation sounds reasonable to you, probably the IRS agents have a simple rule with as few exceptions as possible. Vanguard for sure doesn't want to stick its head out and easier for them to just say sorry and too bad. Should have filled the form out correctly.

If the IRS makes an exception to allow you to be permitted to place funds in your retirement account late (and it became known), they would face an avalanche of people wanting to do same for many reasons. I don't think they want to do that.

Even the most sympathetic person at the IRS will shed no tears because a physician missed one year of contributions. This is just my cynical opinion. I've been wrong many times and I'd be happy to be wrong this time.

Good luck.