Tried to setup a 72t SEPP withdrawal with Vanguard - Extremely disappointed

[jtg5964]

My wife and I called to setup a 72t from her IRA from Vanguard last Saturday. The woman I spoke to would not help me at all with my questions, she kept saying I cannot provide you with that information, this was after being transferred to her. These were extremely simple questions.

1) Can you tell me the 120% federal midterm rate that I should use for calculating the withdrawal amount for a withdrawal in July using the Amortization method? No sir, I cannot provide you with that information.

2) Can you tell me if the amount I withdraw has to be an exact calculation or can it an amount less than the calculated amount of the SEPP method chosen? No sir, I cannot provide you with that information. Have you consulted with a tax advisor?

Then she let me set up a withdrawal to be executed on 7/1 that would have certainly been penalized 10% by the IRS because it was for less than the required calculated amount. This woman was extremely unhelpful, matter of fact I receive better service when being helped by a call center in India on a technical problem.

This sort of service is completely unacceptable, and can only hope someone from Vanguard sees this.

 

[MichaelB]

jtg5964, the folks at Vanguard most likely to see this are probably thinking about retirement - after all, this is the Early Retirement org. Sorry for your troubles at Vanguard, but you might have more success contacting them directly to share your complaints and dissatisfaction.

 

[FUEGO]

This seems like a question best answered by a tax adviser or diligent DIY research. After all, penalties for getting it wrong are very steep, and the last thing Vanguard wants is tons of liability for calculating and updating the annual 72t withdrawals, and making sure you make them as long as you have to.

There are services out there that will calculate 72t withdrawals for a fee.

 

[Nords]

This sort of service is completely unacceptable, and can only hope someone from Vanguard sees this.

I think you're getting the best possible customer-service advice that Vanguard's low-cost legal staff will let them hand out.

Sorry for your troubles at Vanguard, but you might have more success contacting them directly to share your complaints and dissatisfaction.

It might also be worth posting at Bogleheads:
Bogleheads • Index page
and on Vanguard's Facebook page:
https://www.facebook.com/Vanguard/info

 

[jtg5964]

This seems like a question best answered by a tax adviser or diligent DIY research. After all, penalties for getting it wrong are very steep, and the last thing Vanguard wants is tons of liability for calculating and updating the annual 72t withdrawals, and making sure you make them as long as you have to.

There are services out there that will calculate 72t withdrawals for a fee.

So they can tell you a RMD that needs to be done at 70.5 from your 401K, but can't tell you what your SEPP withdrawal needs to be if you want to setup a 72t if give them what method you want to use? What the heck is the difference?

 

[teejayevans]

So they can tell you a RMD that needs to be done at 70.5 from your 401K, but can't tell you what your SEPP withdrawal needs to be if you want to setup a 72t if give them what method you want to use? What the heck is the difference?

The RMD is a simple table lookup of % based on your age and it's required, you don't have an option. The 72t is optional, probably fairly rare, has 3 different calculation methods, and the math is much more complex, including finding out what todays 120% rate is, since it changes every month, rules when you can stop, etc... I don't blame them at all for not getting involved with 72t.
TJ

 

[teejayevans]

This sort of service is completely unacceptable, and can only hope someone from Vanguard sees this.

I don't see the problem, they are not tax/financial advisors, they are a mutual fund company.
It would be like going to the computer store to buy a computer and asking them to install Linux on it...they are going to tell you they just sell the computers....now maybe if you were a flagship member, they might provide the financial advisor services, which is what you are asking for...
TJ

 

[jtg5964]

The RMD is a simple table lookup of % based on your age and it's required, you don't have an option. The 72t is optional, probably fairly rare, has 3 different calculation methods, and the math is much more complex, including finding out what todays 120% rate is, since it changes every month, rules when you can stop, etc... I don't blame them at all for not getting involved with 72t.
TJ

Come on, they can't tell me that I can use the 120% of the mid-term rate from May or June to calculate a SEPP withdrawal in July and have what the last 2 months rates were?

I realize there are calculators all over the net, but I was expecting someone on the phone line who could help me out with my questions. This woman had no interest in helping, none at all, and that is what PO'd me.

 

[jtg5964]

I don't see the problem, they are not tax/financial advisors, they are a mutual fund company.
It would be like going to the computer store to buy a computer and asking them to install Linux on it...they are going to tell you they just sell the computers....now maybe if you were a flagship member, they might provide the financial advisor services, which is what you are asking for...
TJ

Totally different scenario, you are asking the computer store to reconfigure the computer and I'm sure they would do it for a price if they had Linux licenses and familiar with wiping out the existing operating system.

So what you are telling me is if this IRA had 1 million (not sure on exact #) to qualify for financial advisor services then most likely I would have at least received correct information.

 

[donheff]

I am not surprised at all that they won't calculate this for you. If it was a no-brainer you would not have to ask. Since you do it is obvious that it has consequences and you need to get it right. They are not tax advisors. Try putting it another way -- would you trust some random phone clerk at Vanguard or Fidelity to advise you on something like this or would you double check with other sources?

 

[clifp]

Come on, they can't tell me that I can use the 120% of the mid-term rate from May or June to calculate a SEPP withdrawal in July and have what the last 2 months rates were?

I realize there are calculators all over the net, but I was expecting someone on the phone line who could help me out with my questions. This woman had no interest in helping, none at all, and that is what PO'd me.

72(t) are very uncommon withdrawals I imagine much less than one person in an thousand ever use them and it is possible the number is 1/10,000 for Vanguard customers. More than likely you were the first person who ever asked her to do it..

A tax adviser is your best bet. AFAIK, the only source of accurate FREE information is 72t.net I notice the home page has 120% rates displayed prominently.

 

[jtg5964]

I am not surprised at all that they won't calculate this for you. If it was a no-brainer you would not have to ask. Since you do it is obvious that it has consequences and you need to get it right. They are not tax advisors. Try putting it another way -- would you trust some random phone clerk at Vanguard or Fidelity to advise you on something like this or would you double check with other sources?

Don, it wasn't a no-brainer. I was not sure what mid-term rate value to use in the calculation. With more DD I figured it out, but thought the rep on the phone could have answered a simple question.

Guess Vanguard could have left out the "advice services" or clarified if you have enough in your account, you'll get the advice.

Vanguard web site
Access your accounts and timely investment information. Learn about retirement investing, mutual funds, ETFs, IRAs,
401(k) plans, college savings plans, brokerage, advice services, and more.

 

[GrayHare]

To me it does not sound like the OP is requesting advice, but rather only the result of a calculation based on a formula that a firm like Vanguard should have readily available.

 

[FUEGO]

The penalty for getting 72t calcs wrong is very severe. It invalidates all your previous 72t withdrawals and you will get hit with interest penalties and early withdrawal penalties dating back to your first withdrawal IIRC. Could be tens or hundreds of thousands of dollars in expense if you are off by a dollar.

I wouldn't rely on the advice of a CSR to make these kinds of decisions.

Pay a tax adviser, do the due diligence yourself, or hire a more expensive financial adviser that will throw in some tax consulting for "free".

 

[clifp]

The penalty for getting 72t calcs wrong is very severe. It invalidates all your previous 72t withdrawals and you will get hit with interest penalties and early withdrawal penalties dating back to your first withdrawal IIRC. Could be tens or hundreds of thousands of dollars in expense if you are off by a dollar.

I wouldn't rely on the advice of a CSR to make these kinds of decisions.

Pay a tax adviser, do the due diligence yourself, or hire a more expensive financial adviser that will throw in some tax consulting for "free".

+1

It is like calling up the law office and expecting the receptionist to tell you what forms you need to file for appealing your felony conviction. I would think the liability issues alone would keep the Vanguard frontline CSR people from talking.

Years ago when I was seriously considering doing a 72(t) I read the section in the IRS publication. I'm smarter than the average bear about taxes and financial, and I can say that my brain hurt after reading it.

 

[jtg5964]

+1

It is like calling up the law office and expecting the receptionist to tell you what forms you need to file for appealing your felony conviction. I would think the liability issues alone would keep the Vanguard frontline CSR people from talking.

Years ago when I was seriously considering doing a 72(t) I read the section in the IRS publication. I'm smarter than the average bear about taxes and financial, and I can say that my brain hurt after reading it.

Actually the initial person who had a limited knowledge on what I was even proposing, transferred me to someone else. So I assumed that the person on the phone would have more been more helpful. In reality, I just don't think i was asking very complicated questions.

So if I call up Vanguard and ask them if they can give me some information on tax free investments, the person on the phone is going to tell me to consult a tax advisor before giving me one ioda of information?

 

[Nords]

So if I call up Vanguard and ask them if they can give me some information on tax free investments, the person on the phone is going to tell me to consult a tax advisor before giving me one ioda of information?

If you're expecting the readers of this question to react with sympathy or even empathy instead of feeling antagonized by the tone of your question, then I suspect you're going to be disappointed.

If, as perhaps your question is implying, you're looking for some other fund company to do a better job with a 72(t), then I suspect you're going to be even more disappointed.

And, yes, I'm pretty sure that on every piece of Vanguard paper that offers advice on tax-free investments (and 72(t) withdrawals) , it will recommend that you consult your tax advisor. The advantage is that Vanguard's pieces of paper with that advice are much cheaper than the ones handed out by Fidelity, Schwab, and other fund companies.

Perhaps an imperfect analogy would be expecting a car dealer to run a driver's ed school as well as just selling & maintaining the hardware.

So... heard anything back yet from posting your questions on Bogleheads?

 

[Animorph]

Vanguard web site
Access your accounts and timely investment information. Learn about retirement investing, mutual funds, ETFs, IRAs,
401(k) plans, college savings plans, brokerage, advice services, and more.

They're only saying "Learn about... advice services", not that they're giving advice out for free. I think your question was out of their league and too close to the forbidden zone of tax advice.

 

[winger]

You will find Vanguard stays as far away from 72Ts as possible. They will not "code" your payments as "approved" withdrawals, you will need to file an additional form every year that requests a coding change.

Of course, the IRS doesn't look at that form until you appeal the tax deficiency notice they send you.

 

[Htown Harry]

Welcome jtg5964!

I hear you, man. Just the other day I got the cold shoulder from my HR Department at work.

I thought it was an extremely simple question - I asked them what changes I should make to my W-4 so that I could stay cool with the IRS if I reduced my IRA and 401(k) contributions this year.

They said they would be happy to help me with the part the equation they were involved with (the payroll deduction) but I was on my own in figuring out the part they didn't have anything to do with.

 

[nun]

Vanguard is not in the business of offering financial and taxation advice. There are probably liability issues too. So I think it's entirely appropriate for them to tell you to consult a tax advisor.

 

[jtg5964]

Vanguard is not in the business of offering financial and taxation advice. There are probably liability issues too. So I think it's entirely appropriate for them to tell you to consult a tax advisor.

Vanguard is in the business of offering financial advice, they have CFP's on staff that do just that. If you have enough in your account they'll even have free consultations with you, and are not commissioned based. Whether a Vanguard CFP would help answer the questions, I have no experience but believe they would.

I posted the thread to see if anyone else had similar dealings with the 72t topic with Vanguards call center. I guess I was under an incorrect assumption that Vanguard would help me understand what # to plug into a financial calculation. I was wrong, it wasn't the first time and it won't be the last.

 

[FUEGO]

So if I call up Vanguard and ask them if they can give me some information on tax free investments, the person on the phone is going to tell me to consult a tax advisor before giving me one ioda of information?

First of all they would ask you what you mean by "tax free"? Then they would probably tell you about municipal bond funds that are free from taxation at state and/or federal levels.

Then they might mention tax benefits of various forms of IRAs.

Then they might mention the tax-managed mutual funds they offer (Tax managed small cap fund comes to mind).

Then they might talk about general tax advantages of index funds and ETFs.

Talking to you about their particular products and the tax advantages seems like something they could tell you about generally, since all US based retail customers will have similar tax situations, however they wouldn't be able to give specific tax advice for your particular situation.

 

[FUEGO]

Perhaps an imperfect analogy would be expecting a car dealer to run a driver's ed school as well as just selling & maintaining the hardware.

More like a Toyota dealer telling you how to convert your Prius to an all electric plug in. It's just simple bolting stuff on and cutting stuff and popping wire nuts on the right combo of wires after all...

If the dealer gets it wrong and your car melts down (or accelerates into oncoming traffic at 80 mph), your lawyers (or your estate's lawyers) knock on that dealer's door for a big pay day because their advice turned out to be wrong.

 

[Rustward]

Vanguard is in the business of offering financial advice, they have CFP's on staff that do just that. If you have enough in your account they'll even have free consultations with you, and are not commissioned based. Whether a Vanguard CFP would help answer the questions, I have no experience but believe they would.

I posted the thread to see if anyone else had similar dealings with the 72t topic with Vanguards call center. I guess I was under an incorrect assumption that Vanguard would help me understand what # to plug into a financial calculation. I was wrong, it wasn't the first time and it won't be the last.

This is not something a CFP does. It is a tax question, and for that you need a tax specialist (CPA or other person qualified to give tax advice.)