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Vanguard: Be Careful Transferring $$ in NC
Old 01-08-2015, 08:32 AM   #1
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Vanguard: Be Careful Transferring $$ in NC

This is a fantastic forum with a wealth of information and really shrewd people...thanks to all of you for making me smarter with my money.

I retired early last year and had partial earnings so I had no reason to use any of my investment money last year. However, this year I wanted to pay off my house and needed some of my money at Vanguard. So I went through the steps using the Vanguard website...simple and straightforward. However, when I saw the posted amount in my bank account it was for $2500 less than I had executed using Vanguard's steps. A big surprise which really pissed me off.

Here is what happened and the built in Murphy" buried in the fine print if one can read between the lines. It is not obvious.

An individual has three choices for state withholding:
1) No tax withheld
2) The minimum state requirement (which in NC is 4% but not shown to the user)
3) A specified dollar amount

I selected a specific dollar amount for state taxes withheld ($500) which was less than the 4% minimum. No warnings or pop-ups activated telling me this amount was not going to execute. Instead the Vanguard confirmation page came up and showed exactly what I thought I was selecting and the total amount that I wanted to be deposited in my bank account. Ah, poor, ignorant fellow! "Hit the execute button and kaa ching...and voila $2500 less than planned!" Without explanation on their Confirmation page, Vanguard withheld the 4% minimum not the $500 I wanted ($3000 taken out vice $500). The selection of a specified dollar amount does not tell the individual that if the amount is less than 4% then Vanguard will automatically deduct the full 4%.

I called Vanguard and spoke with a very courteous man. I told them they had a problem and he agreed with me. I am not the first to be snookered by their less than adequate coding on their money transfer website page. Of course, once I made the execution, Vanguard said there is nothing they can do to undo the transaction. Vanguard uses the legal argument that the states require them to withhold the minimum. I reminded Vanguard they have a fiduciary responsibility first and cannot extract additional money from an account without the express permission of the client. He said he is reporting this incident to their top management and agreed that the steps and consequences of choices are not clearly explained before an individual executes a transfer.

This was my first time transferring retirement money to a bank account using Vanguard so maybe a rookie mistake. So for all you other rookies, be careful.
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Old 01-08-2015, 08:40 AM   #2
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Welcome to the forum. I see you joined quite awhile ago but you're only now making your first post.

Your problem is easily solved. Move to a state that doesn't have an income tax.
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Old 01-08-2015, 08:48 AM   #3
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Vanguard is pretty well known for not having the best IT implementation.

But another solution to your problem is to withdraw some more money to get to the total amount you need, right?

I also want to ask you this: If a warning had come up about needing to withdraw the minimum tax, would you at that point have increased the amount you need withdrew so that the net amount was what you wanted? Or would you have withdrawn from another account? Or something else?
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Old 01-08-2015, 08:58 AM   #4
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I would have selected "no tax withheld" since I have NC tax covered from other income.
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Old 01-08-2015, 09:16 AM   #5
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Good to know! We'll eventually be withdrawing money from trad. IRAs from Vanguard, also in NC. I guess this means they will hold a little extra for you during the year until tax time. At least you won't owe an underpayment penalty for NC taxes.
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Old 01-08-2015, 09:23 AM   #6
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Annoying and I completely understand your frustration, but at least you know you will be refunded that amount by NC at tax time if you end up overpaying.

I hope you were still able to pay off your house. Congrats on that and on your retirement last year.
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Old 01-08-2015, 09:53 AM   #7
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Originally Posted by LOL! View Post
Vanguard is pretty well known for not having the best IT implementation.

....snip....
Sad but very true. A system that doesn't tell you a decesion it made to 'help' you is pretty sad. Last I coded, computers could subtract pretty well.

I would assume this applies to any state with state taxes.

In their defense spending less on IT allows for low fees.

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Old 01-08-2015, 10:15 AM   #8
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This is yet another example of why I am torn between Vanguard and Fidelity. I love Vanguards funds and their fees, but I hate their website. If they took a penny from every million dollars they have invested there, they could have the best website out there.

I don't understand why they won't invest in their user interface, especially since they aren't a brick and mortar business.
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Old 01-08-2015, 10:36 AM   #9
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Bestwifeever...Thanks on the retirement congrats and yes house is paid off! First time in our lives we are totally debt free...had the chance and we just had to try out the feeling...very, very, nice!!


If I had a do over with Vanguard probably would have ben wise to call first and have someone walk me through the choices...but ah,"I don't need no stinking help...duh."
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Old 01-08-2015, 10:55 AM   #10
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This is yet another example of why I am torn between Vanguard and Fidelity. I love Vanguards funds and their fees, but I hate their website.
Ditto. Diminished IT capacity also extends to many of their other Administrative behaviors. The OP experience is one of many. They independently changed my Mom's beneficiaries without notification. Had I not caught and corrected we would have had a major issue when she passed away shortly after. When I called about getting corrected I was referred to a separate dept where all I got was a snarky response that they had to make the change due system changes. NOT
Good news is that with all the offered now by Vanguard you can buy for $8 in your Fido account and not have to deal with Vanguard's poor brokerage and questionable proficiencies.
Nwsteve
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Old 01-08-2015, 11:05 AM   #11
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Maybe I'm less discerning than I should be, but after 10 years as a Vanguard customer I've yet to have any issues with them.
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Old 01-08-2015, 11:08 AM   #12
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Ditto. Diminished IT capacity also extends to many of their other Administrative behaviors. The OP experience is one of many. They independently changed my Mom's beneficiaries without notification. Had I not caught and corrected we would have had a major issue when she passed away shortly after. When I called about getting corrected I was referred to a separate dept where all I got was a snarky response that they had to make the change due system changes. NOT
Good news is that with all the offered now by Vanguard you can buy for $8 in your Fido account and not have to deal with Vanguard's poor brokerage and questionable proficiencies.
Nwsteve
Did she have different beneficiaries for different funds/accounts and Vanguard switched them to just one?
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Old 01-08-2015, 11:12 AM   #13
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Wow, I guess I am lucky. Is that just a North Carolina thing?

It doesn't seem to happen here in Louisiana, even though we have a state income tax too. Last week when I transferred a five figure sum from my taxable mutual fund accounts at Vanguard to my checking account, as usual they didn't try to withhold anything at all. Not one cent.

That's the way I wanted it, of course, since I do estimated taxes and I can deal with that myself.
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Maybe I'm less discerning than I should be, but after 10 years as a Vanguard customer I've yet to have any issues with them.
Me too, after 14 years with Vanguard.
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Old 01-08-2015, 11:20 AM   #14
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I always say no tax withheld and cover off the taxes myself so I have never had this issue. Agree that it should be different. I suspect that if you made a bigger stink that they might fix your transaction but I'm not sure that it would be worth the effort and you'll just get a bigger refund at tax time or make lower estimated payments if applicable so it is just a timing difference.
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Old 01-08-2015, 12:04 PM   #15
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Quote:
Originally Posted by Helen View Post
This is yet another example of why I am torn between Vanguard and Fidelity. I love Vanguards funds and their fees, but I hate their website...
Quote:
Originally Posted by nwsteve View Post
Ditto. Diminished IT capacity also extends to many of their other Administrative behaviors. The OP experience is one of many... {snip} ...Good news is that with all the offered now by Vanguard you can buy for $8 in your Fido account and not have to deal with Vanguard's poor brokerage and questionable proficiencies.
Helen, there is no reason to be torn. As Steve suggests, you can hold your favorite low-cost Vanguard ETFs at Fidelity and enjoy the best of both worlds. Schwab and E-Trade would be great alternatives as well. I've been holding my mainly-Vanguard ETF portfolio at Fidelity for many years. I also hold some iShares ETFs that trade commission-free at Fidelity. The Vanguard ETFs trade for $7.95, but I trade them so infrequently that the cost is of no consequence. For smaller accounts or more frequent traders, I suppose the $7.95 might be a consideration. Seems to me, the decision of where to hold one's accounts, and what to invest in, are completely independent decisions, based on completely independent criteria.
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Old 01-08-2015, 12:11 PM   #16
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Cobra, Fidelity's limited selection of Spartan index funds meet my needs but I haven't been able to find a Wellesley ETF at Vanguard.
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Old 01-08-2015, 12:23 PM   #17
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Sad but very true. A system that doesn't tell you a decesion it made to 'help' you is pretty sad. Last I coded, computers could subtract pretty well.

I would assume this applies to any state with state taxes.

In their defense spending less on IT allows for low fees.

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Spending less on IT results in upset customers who take up a lot of time with company representatives. I think quality software implementation would be much cheaper in the long run.
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Old 01-08-2015, 12:41 PM   #18
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Good news is that with all the offered now by Vanguard you can buy for $8 in your Fido account and not have to deal with Vanguard's poor brokerage and questionable proficiencies.
Nwsteve
I'm having trouble understanding this. Are you saying that Fidelity offers similar options for an $8 fee?

John
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Old 01-08-2015, 12:43 PM   #19
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Cobra, Fidelity's limited selection of Spartan index funds meet my needs but I haven't been able to find a Wellesley ETF at Vanguard.
Wellesley is an actively-managed mutual fund with no ETF equivalent. I only use passively-managed, ultra-low-ER index funds. And I prefer the many advantages of an ETF over mutual funds. If you are enamored with Wellesley (as many rightfully are), then keep that money at Vanguard and deal with the service, or pay $75 to buy it at Fidelity. Personally, I prefer the DIY index ETF approach, and I like Fidelity's online interface and service over Vanguard. But that certainly does not preclude Vanguard holdings at Fidelity.
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Old 01-08-2015, 12:46 PM   #20
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I'm having trouble understanding this. Are you saying that Fidelity offers similar options for an $8 fee?

John
You can buy Vanguard ETFs through your Fidelity brokerage account. You can also buy some Vanguard funds from Fidelity (or other brokerages), but there is a higher fee.

Yes Fidelity's Spartan funds are a good alternative.

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