Vanguard IRA Distribution Limitations

[donheff]

I talked to a Vanguard rep the other day and got a confusing answer about a limitation they impose on IRA distributions. DW has large IRAs at Schwab and Vanguard. RMDS will be starting in a couple of years. This year she will probably liquidate some IRA funds for yearly expenses since we have room in the current tax bracket(s) and see nothing but higher brackets coming up.

At Schwab she is able to set withholding as she sees fit for both Federal and DC taxes. But at Vanguard she can only do Federal. The guy I talked to said some gobbledy gook about some states limiting them. When I pointed out Schwab does it he had no answer why VG couldn't. This is a PITA since we don't do quarterlies and don't want to.

Has anyone else run into this at Vanguard? Do you know why they would stick it to us (DC) and not some other states?

 

[Z3Dreamer]

Just to clarify: Did you take the rep's word that it won't do it or did you try to set up a distribution, yourself? I have done a number of IRA withdrawals, although none recently. I do not remember a problem with state withholdings. Are you saying VG does not state withholding or just DC?

 

[PaunchyPirate]

I’m pretty sure I’ve read other reports that there are some states where they can withhold and some where they cannot. At Vanguard.

 

[Midpack]

This says Vanguard can handle Fed & State withholding on IRA distributions. Unfortunately Vanguard reps these days are decidedly hit and miss. https://personal.vanguard.com/pdf/s156.pdf?2210105562

 

[MarieIG]

I have had both federal and state tax withheld by Vanguard.

 

[MissMolly]

Vanguard does not withhold on all states on Mutual Fund IRAs and Brokerage IRAs. You can see their list here: https://vanguard.com/pdf/sawhtc.pdf

 

[MarieIG]

This says Vanguard can handle Fed & State withholding on IRA distributions. Unfortunately Vanguard reps these days are decidedly hit and miss. https://personal.vanguard.com/pdf/s156.pdf?2210105562

That does list DC . . .

 

[Al18]

Wow - 10.75% withholding on the amount of distribution for Washington DC according to the link Midpack posted. That’s the highest state withholding listed on the chart.

 

[COcheesehead]

I can do all of this online at Fidelity and specify both Fed and state withholding.

 

[Graybeard]

I took my first RMD last year online. I split it into 2 different distributions, one in Summer and the other in late Fall. In both cases, I was able to specify either the % to withhold for state tax or the dollar amount.

 

[plsprius]

I do it online at Vanguard, for both Fed and California withholding. No issues as far as I can tell.

As you might not know, withholdings from IRA distributions have the added benefit of meeting any estimated tax obligation for the year, and if you withhold the full obligation before the end of the year you can skip quarterly estimated taxes. Of course, you should check this out with your qualified tax advisor!

 

[COcheesehead]

This thread is another example of where talking to the rep isn’t the best option. I find the major brokerages offer almost every action via their website and the information is usually far more accurate.

 

[donheff]

This says Vanguard can handle Fed & State withholding on IRA distributions. Unfortunately Vanguard reps these days are decidedly hit and miss. https://personal.vanguard.com/pdf/s156.pdf?2210105562

Interesting.it is a brokerage account. Not only is it listed, it says you can’t waive star if you deduct Fed. The reason I called was because I was tapping through the screens and after I set the Fed percentage it didn’t offer a state option. IIRC, the submit button warned that the action could not be undone. That sounded like it would go through without state withholding. That’s when I called and got what is apparently a wrong answer. I’m still hesitant to proceed until I clear things up. I will check out the message center.

 

[Gumby]

I have withheld both federal and state taxes from Vanguard IRA distributions. In fact, if I withhold any federal tax at all, they are required to withhold 6.99% for the State of Connecticut. The only limitation I have faced at Vanguard is that you cannot withhold 100% for tax. You have to take at least 1% for yourself.

 

[youbet]

Interesting.it is a brokerage account. Not only is it listed, it says you can’t waive star if you deduct Fed. The reason I called was because I was tapping through the screens and after I set the Fed percentage it didn’t offer a state option. IIRC, the submit button warned that the action could not be undone. That sounded like it would go through without state withholding. That’s when I called and got what is apparently a wrong answer. I’m still hesitant to proceed until I clear things up. I will check out the message center.

Actually it says you CAN waive state if you deduct fed.

 

[Masquernom]

Yep, I live in Kentucky and have Federal taxes withheld on IRA distributions, but can't have state taxes withheld. I was surprised by that. I'm using Vanguard. Matches the linked list from Vanguard.

 

[braumeister]

Yep, I live in Kentucky and have Federal taxes withheld on IRA distributions, but can't have state taxes withheld.

Similarly, I can have federal tax withheld from my military pension and my Soc Sec, but not Kentucky tax because they don't have an agreement in place with the feds. Perhaps it's the same issue.

 

[Graybeard]

I have withheld both federal and state taxes from Vanguard IRA distributions. In fact, if I withhold any federal tax at all, they are required to withhold 6.99% for the State of Connecticut. The only limitation I have faced at Vanguard is that you cannot withhold 100% for tax. You have to take at least 1% for yourself.

That is not true, it may sound like that is how it works or bad advice from a rep, but you do not have to have CT income tax withheld at Vanguard when taking an RMD. I was furious at the idea that they'd withhold 6.99% for CT when I was not in the highest tax bracket and would not owe anywhere near 6.99%.

In 2022, I took 2 RMDs from my Vanguard IRA, the 1st was a small amount to see how it worked and the 2nd was the balance. In both instances I had Federal tax withheld but $0 withheld for CT state income tax. I did the same for my 401k RMD but the 2nd distribution I had all the state income tax withheld for the Vanguard IRA and the 401k distributions. I just checked my paperwork to be sure and that is how I did it.

 

[Gumby]

Have you filed a form CT-W4P with Vanguard? If not, they are required to withhold at 6.99%. It's a Connecticut state law.

See https://portal.ct.gov/-/media/DRS/Publications/pubsip/2022/IP-2022-8.pdf

 

[Graybeard]

Have you filed a form CT-W4P with Vanguard? If not, they are required to withhold at 6.99%. It's a Connecticut state law.

See https://portal.ct.gov/-/media/DRS/Publications/pubsip/2022/IP-2022-8.pdf

No, not for RMDs. I don't think I did in the past either. I assure you Vanguard withheld $0 for CT income tax for both of the distributions I took last year to satisfy my RMD.

Same BS with my pension, $0 withheld because I didn't owe any CT income tax since I retired but the RMD has now changed that.

 

[Gumby]

I believe that they didn't withhold from your distribution. I'm just unable to find any legal basis for them to do that. Not that I'd spend any time trying to change their ways.

 

[donheff]

I talked to someone in the retirement section who told me I have to file a W4 and specify the amount I want withheld. I can only change that amount with another W4. Seems like an odd limitation since others don't require that for DC.

 

[MRG]

This thread is another example of where talking to the rep isn’t the best option. I find the major brokerages offer almost every action via their website and the information is usually far more accurate.

Considering that representatives are poorly compensated, not holding advanced degrees, that makes a lot of sense. When I was still working, the industry was looking at rules engines(AI light) that would prompt the representative to read the documentation to the caller. It didn't fly.

Instead, imagine the complexity of having 50 different set of state requirements and having legal updating the policies and procedures, training thousands of representatives weekly or monthly on the new policies. By the time you're done, everything those people learned is outdated and wrong.