35F – After watching my 401k grow from 0 to 21k in less than 3 years, I've started becoming increasingly more interested in long term investing. I had an old 401k/IRA rollover of 3.2k and decided to move it over to an existing Vanguard account – this was at the beginning of January, so over 90 days ago. Just this last week, I finally invested all of it into an Index S&P 500.
Over the last day or so of listening to different finance videos and podcasts, I have come to the realization that my Vanguard account is NOT a Roth IRA but a brokerage account. So now I will be subject to being penalized and taxed on withdrawing from that original IRA correct??? I'm past that 60 day threshold AND I also invested it.
Actions I've taken now, opened a Roth IRA in my Vanguard account, sold the Index investment, and plan to move that money over to the IRA once it processes.
Thoughts?? How much will I have to pay on that 3.2k if the IRS does not forgive my mistake?
Recently became interested in long term investing and made a dumb mistake.
byu/ashepherdamongwolves inpersonalfinance
Posted by ashepherdamongwolves
8 Comments
You will pay normal income tax on that $3200, plus a 10% penalty ($320) for early withdrawal.
I doubt there’s anything you can do to fix it at this point if it’s past 60 days.
The good news is that wasn’t a large amount of money. $320 is not a crushing penalty. $3200 compounding for 30 more years might grow to $20K if your investments perform really well, which isn’t enough to change the quality of anyone’s lifestyle in retirement. And you still have the money and it’s still invested! It’s just not tax advantaged anymore.
So, you made a mistake. Learn the lesson and move on.
You are correct that you messed this up.
You will pay your income tax rate plus 10% in tax and penalty. If your income tax is 22%, you lose 32%.
$1000 or so isn’t the worst dumb finance tax. It hurts, but better that than some of the mistakes seen here. Or any given payday loan.
Lesson learnt. We all make some mistakes. If this amount was any bigger you would be paying more in tax and penalty. There is no forgiveness from IRS at this point. Forgive yourself and move on.
My advice is to *call* Vanguard on the phone Monday.
A rollover should go into an IRA, not taxable brokerage. But if you somehow handled this wrong and it ended up in taxable, the damage is done.
It is possible you are confused about the type of account you have or your ignored a bunch of warnings during the transfer. Calling Vanguard should help you figure out where the money is and how this happened. But there is no fixing it.
Glad you are learning about investing. Next make a budget so you can do after tax investing in an S&P index fund.
Yes you will pay a penalty and taxes.
As others have mentioned, you are probably SOL.
To add to those telling you “cheer up, it’s a small price to pay to learn a lesson”: Some people NEVER learn this, through 40 years of investing. They retire, and decide to withdraw their whole 401k at once, either for some big purchase or because they think they are just supposed to, and they commit this mistake but with hundreds of thousands of dollars, putting them in the 30%+ tax brackets, and even without the 10% penalty, this mistake can easily cost a typical retiree $100K-$200K. So you really are getting a cheap lesson.
example:
[https://www.reddit.com/r/personalfinance/comments/1bntefk/father_took_out_401k_early_what_to_do/](https://www.reddit.com/r/personalfinance/comments/1bntefk/father_took_out_401k_early_what_to_do/)
Always good to look at form 8915-F for relief from the 10% penalty.
I encourage you to take some time to read some basic investing/retirement resources – including the Prime Directive within the wiki in this sub.
Selling right after buying in your brokerage account was fairly short-sighted. You probably had some small gains given how the market was this week, and now those will be taxed at the short-term capital gains rate. You can’t/shouldn’t just keep moving money back and forth between a Roth IRA and a brokerage. If you decide to “put this money back” in your new Vanguard Roth IRA, what you’ll be doing is making a ~$3.2K contribution to your Roth IRA for 2026, putting you close to half-way towards your $7,500 annual limit for contributions. *Keep the money there for the next ~30 years*, and then any additional gains will be withdrawn tax-free.