DQOTD: Withholding on Vanguard IRA Distributions?

[Midpack]

Background: Earlier this year I briefly took some dividend distributions from my TIRA, and Vanguard sent withholding to federal and state, though I don’t remember being asked? This is the reason for my question.

Now: I am beginning large Roth conversions from my TIRA to a Roth IRA. I want to pay all taxes from our taxable account, not from tax deferred IRA. When I set up the Roth account and did a test $1K conversion, there was a mention that Vanguard wouldn’t withhold. But before I convert a large amount, I’d feel better if I could see that set somewhere, preferably online, and I can’t find anything. I assume it’s irreversible if they withhold. I called and a random Flagship rep told me there would be no withholding, but when I told him Vanguard withheld from my dividend distributions, he acted surprised - not reassuring.

Anyone know how to confirm Vanguard will NOT withhold for federal or state conversions on TIRA distributions>Roth conversions? Or do I hope the rep knew what he was talking about. I’m not feeling that confident with VG lately after they sent snail mail re: my accounts to my sister...

[RunningBum]

I have never had any withholding on my Roth conversions at Vanguard. I can't remember if there's an option, to which I would've said No, but I do know that they haven't withheld, and I've been converting there for about 10 years.

I've never done withdrawals from my tIRA.

[pb4uski]

I've done numerous Roth conversion and never a withholding as long as you make the correct selections.

Just do Withdraw from an IRA under the Transactions menu... then select Exchange to Another Fund when you get to Where's the money going?.... then click on your Roth account and you'll see a "Click here to complete a Roth conversion" and follow the prompts... be sure to check the do not withhold box.... you'll see the screenshots below... you can cancel at any time if you're are not comfortable.

[davismills]

I was on their website the other day to set up monthly withdrawals. VG defaults to withholding 10 percent, but you ARE given the option to have zero dollars withheld.

[Midpack]

Quote:

Originally Posted by pb4uski I've done numerous Roth conversion and never a withholding as long as you make the correct selections. Just do Withdraw from an IRA under the Transactions menu... then select Exchange to Another Fund when you get to Where's the money going?.... then click on your Roth account and you'll see a "Click here to complete a Roth conversion" and follow the prompts... be sure to check the do not withhold box.... you'll see the screenshots below... you can cancel at any time if you're are not comfortable.

That’s exactly what I was hoping to see (again). The way I read the second page Vanguard isn’t able to withhold from TIRA distributions to Roth accounts, but then it goes on to mention withholding notice options which confused me. And having them withhold federal and state from my dividend distributions, that I didn’t want, made me wonder further. Sounds like I won’t have a problem when I do conversions as long as I pay attention in the process. Thanks all.

[KM]

Yeah, I’m in the opposite situation. I’m doing some TIRA to ROTH conversions with Vanguard and would like them to withhold some tax. They can’t (for only god knows why)....so I have to do a second withdrawal from my TIRA and then send in the tax myself [emoji849]

[pb4uski]

Quote:

Originally Posted by KM Yeah, I’m in the opposite situation. I’m doing some TIRA to ROTH conversions with Vanguard and would like them to withhold some tax. They can’t (for only god knows why)....so I have to do a second withdrawal from my TIRA and then send in the tax myself [emoji849]

I'm surprised that they can't do withdrawals on a Roth conversion... it seems that they should from the prompts when you do a Roth conversion online but I've never actually tried to do one so I'll take your word for it.

On that second withdrawal for the taxes you can have it 99% withheld... so if you are taking out $10,000 and would have liked to have $1,500 withheld and $8,500 transferred to your Roth IRA, you can do a $8,500 Roth conversion with no withholding and then a $1,515.15 IRA withdrawal with 99% withheld... they'll send $1,500 to the feds and they'll send you the remaining $15.15... it will save you having to send in the tax yourself.

More importantly, for the purpose of computing underpayment penalties and interest, the IRS treats the $1,500 of withholding as having been made ratably throughout the year no matter when the withholding occurred whereas if you send them money they will count it on the date that you sent it.

[KM]

Quote:

Originally Posted by pb4uski I'm surprised that they can't do withdrawals on a Roth conversion... it seems that they should from the prompts when you do a Roth conversion online but I've never actually tried to do one so I'll take your word for it. On that second withdrawal for the taxes you can have it 99% withheld... so if you are taking out $10,000 and would have liked to have $1,500 withheld and $8,500 transferred to your Roth IRA, you can do a $8,500 Roth conversion with no withholding and then a $1,515.15 IRA withdrawal with 99% withheld... they'll send $1,500 to the feds and they'll send you the remaining $15.15... it will save you having to send in the tax yourself. More importantly, for the purpose of computing underpayment penalties and interest, the IRS treats the $1,500 of withholding as having been made ratably throughout the year no matter when the withholding occurred whereas if you send them money they will count it on the date that you sent it.

Thanks! I’ll have to try that!