RMD ethical dilemma

[pfpelican]

I have had an interesting thing happen...and it got me thinking.

I recently transferred my (enron) 401k to vanguard.
In the process, I asked them to put it into a particular fund. When they got it set up, I noticed that I'd chosen the wrong fund. I then asked them to put it into a different fund. They set that fund up too on the rollover IRA.

When the check arrived at vanguard, they put the money into BOTH funds. That's right. I got that amount TWICE.

I've since talked to reps twice and sent them a site-email. They have asked me to be patient and promised to get the $ removed from the wrong fund. This happened a couple of weeks ago, and the last contact was last week.

I know they'll get it resolved eventually...and I'll end up with the amount only once.

But I got to thinking....
what if I was over 70 and had to take RMDs by year-end. Would I take some from the duplicate amount, or not. If I did, wouldn't that be seen as theft? If I didn't take an RMD with that amount taken into account, wouldn't vanguard report to the IRS, and eventually the IRS would determine that I'd under-RMDd?

Fortunately, they have 4 years to get it right, before I have to face RMDs.

But what would you suggest to someone who faced RMDs with this situation?

 

[OAG]

The ethical, correct thing.... we all know what that would be. Besides they got the paper trail and I doubt you would get away with it. Also I would think to do the wrong thing as you suggested would be FRAUD. Especially, since they did what you asked them to do -- the error is thiers but I would not try to take advantage of it.

 

[mickeyd]

When the check arrived at vanguard, they put the money into BOTH funds. That's right. I got that amount TWICE.

If I sent you some money, do you think you can get me that same deal? I'd be real apprecative! Vanguard has always ONLY given me credit for whatever amount I sent them.

 

[pfpelican]

If I sent you some money, do you think you can get me that same deal? I'd be real apprecative! Vanguard has always ONLY given me credit for whatever amount I sent them.

Now THAT would be fraud.

 

[Nords]

But I got to thinking....
what if I was over 70 and had to take RMDs by year-end. Would I take some from the duplicate amount, or not. If I did, wouldn't that be seen as theft? If I didn't take an RMD with that amount taken into account, wouldn't vanguard report to the IRS, and eventually the IRS would determine that I'd under-RMDd?

You'd be amazed at how many extra 1099-Rs Vanguard would issue to "correct" this situation...

My FIL worked a lot of overtime in his day and those checks used to be handed out late Friday. Because some CBS employees worked crazier overtime hours than others and might also have been traveling, the amounts of the checks varied widely. One day the man came through passing out checks to the entire crew and my FIL said he managed to pocket his with a straight face.

Due to a computer summing error, his "overtime" check was for the sum of everyone else's overtime checks. Everyone at the company. It was in the high six figures.

Of course copied and framed teh check before CBS's accountants figured it out and chased him down. He thought about selling the check to one of the other networks or the Washington Post but decided that management wouldn't take that very well. Everyone thought it was pretty amusing and made a lot of fun at the accountant's expense, but CBS had the last laugh when they issued that year's W-2s...

 

[Texas Proud]

Just what I know....

If there is a wrong deposit in your account and you remove it... it is theft... you took something that was NOT yours, even if it was in your account...

Just like the check for 6 figures... it was issued in error. You can't just say 'finders keepers'...

Now, will you be prosecuted Probably not... I have heard our bank has sued to get the money back and made it difficult for the people..

But, they also have let some overtime or wrong pay go... to much trouble to get it back when the person has spent it and has no money... maybe it was different laws, but I know we lost over $100,000 in the year that I was in the UK.. but that was over 3,000 people...

 

[ladelfina]

Hmm.. you guys are only focusing on the OP's possible desire to take an erroneously doubled RMD. The more interesting part of the question is -- what got pfpelican thinking-- .. "would the IRS come after me for NOT having taken the "correct" (doubled) amount, according to Vanguard's reporting..?"

I'd imagine the answer is yes, to whatever extent that they pursue these things.. If I were in a RMD situtation I'd just make sure that when the dust clears I have a piece of paper from VG that explains their mistake. If it was close to year-end/tax time I'd stay on the horn until I got a revised 5498 (?) and/or a signed declaration from someone describing the error, a copy of which I'd attach to whatever kind of distribution statements and rollover doc forms/receipts I'd gotten, in an effort to stave off penalties or potentially re-filing my taxes. Not familiar with RMDs, but that's just my .02.

In theory, though, I think you are supposed to pay the tax penalty for "underwithdrawing" even if it's not your fault, and then try to get the IRS to give it back once the situation is resolved; better to resolve it ASAP. I personally would try to nip it in the bud, throw whatever documentation I had at the IRS, and let them come after me if they want to waste time chasing down a penalty that they'll then have to cough back up; I doubt I would docilely offer it up first thing.

 

[Mr._johngalt]

I doubt I would docilely offer it up first thing.

Never ever do this (offer it up first thing). In any dispute/lawsuit/controversey, it is the one holding onto the cash who has the leverage. It's the litigant's version of the Golden Rule, i.e. "The one
with the gold makes the rules." Works in all venues.

JG

 

[donheff]

But I got to thinking....
what if I was over 70 and had to take RMDs by year-end. Would I take some from the duplicate amount, or not. If I did, wouldn't that be seen as theft? If I didn't take an RMD with that amount taken into account, wouldn't vanguard report to the IRS, and eventually the IRS would determine that I'd under-RMDd?

You would have paid tax to the IRS on the extra withdrawal and then, when Vanguard finally caught up with you, you would have to pay the full amount back. Hopefully, IRS would understand when you filled an amended return later. But, if it took Vanguard long enough you would be too late for the amended return. And contrary to JG, I think Vanguard has the gold - not you. I suspect Vanguard could simply tap account two to replace the money stolen from account 1.

 

[pfpelican]

This morning, my online account status shows that Vanguard finally resolved the issue, and removed the duplicate deposit. I now have the right amount in the right fund.

I assure all of you that I worked very hard to make sure that Vanguard was not cheated....and would not have let it be any other way.

However, I still think it presented interesting food for thought and conversation.

pp

 

[Patrick]

This morning, my online account status shows that Vanguard finally resolved the issue, and removed the duplicate deposit. I now have the right amount in the right fund.

I assure all of you that I worked very hard to make sure that Vanguard was not cheated....and would not have let it be any other way.

However, I still think it presented interesting food for thought and conversation.

pp

There was a situation where I used to work recently where an employee was paid the wrong pay grade for about a year. Then someone in payroll noticed it. HR wanted to discipline the employee for stealing, but he claimed that he didn't know he had been paid more because he had auto deposit and never picked up his pay stubs, so nothing happened in that regard. They wound up getting the money back from him by giving him a couple zero-balance paychecks.