Taxing ?

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Taxing ?

Postby cooter » Sat Jun 29, 2013 11:22 am

Hi, I am 59 1/2,will be retiring soon and will be moving my 401k to a traditional IRA with Vanguard. If I invest the IRA into the Vanguard life stategies moderate fund, VSMGX,and lets say that I take a typical 4% drawdown to live off of,will Vanguard withhold any taxes on the 4% draw or will that be my responsibility?

Also it appears that this fund pays dividends and capital gains twice per year June and Dec,If I ask Vanguard to roll these gains back into the fund will the gains be tax deferred till 70 1/2 or must I pay the taxes in the year that they are distributed?
Thanks
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Re: Taxing ?

Postby livesoft » Sat Jun 29, 2013 11:23 am

1. You can ask Vanguard to withhold taxes.
2. Reinvested distirbutions are not taxed and remain tax-deferred even past age 70 1/2 if you do not withdraw them. Remember: You do not have to withdraw your entire IRA by or at age 70.5, but you will have required minimim distributions starting then, so that you will have to withdraw a small part of the IRA each year after that age.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Taxing ?

Postby jsl11 » Sat Jun 29, 2013 11:39 am

Vanguard will withhold federal income taxes upon your request. However, Vanguard will withhold state income taxes only for those states that require such withholding. If your state does not require withholding, Vanguard will not withhold taxes, even if you ask them to do so. My state does not require withholding, so Vanguard will not withhold state income taxes for me. This is an inconvenience and I wish Vanguard would change this policy.
Jeff
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Re: Taxing ?

Postby retiredjg » Sat Jun 29, 2013 11:45 am

jsl11 wrote:Vanguard will withhold federal income taxes upon your request. However, Vanguard will withhold state income taxes only for those states that require such withholding. If your state does not require withholding, Vanguard will not withhold taxes, even if you ask them to do so. My state does not require withholding, so Vanguard will not withhold state income taxes for me. This is an inconvenience and I wish Vanguard would change this policy. Jeff

This may have changed. I made a withdrawal recently. As usual, the website asked if I wanted to withhold federal taxes and if so, what percentage. Then it asked if I wanted to withhold state taxes - I don't recall being asked that before. But it did allow me to say "no"
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Re: Taxing ?

Postby jsl11 » Sat Jun 29, 2013 12:03 pm

retiredjg wrote:
jsl11 wrote:Vanguard will withhold federal income taxes upon your request. However, Vanguard will withhold state income taxes only for those states that require such withholding. If your state does not require withholding, Vanguard will not withhold taxes, even if you ask them to do so. My state does not require withholding, so Vanguard will not withhold state income taxes for me. This is an inconvenience and I wish Vanguard would change this policy. Jeff

This may have changed. I made a withdrawal recently. As usual, the website asked if I wanted to withhold federal taxes and if so, what percentage. Then it asked if I wanted to withhold state taxes - I don't recall being asked that before. But it did allow me to say "no"
Perhaps the website "knows" that your state requires withholding. I made my first RMD this year, and I did it by calling Vanguard, requesting the RMD by speaking to a CR, and I asked a lot of questions. I asked them to withhold for my state and they refused to do so. The withdrawal was made and federal taxes were withheld as I requested.
Jeff
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Re: Taxing ?

Postby retiredjg » Sat Jun 29, 2013 12:10 pm

jsl11 wrote: Perhaps the website "knows" that your state requires withholding.

It has not asked about withholding state taxes before that I recall. It is possible I just don't recall correctly, but I remember being surprised last week when that question came up. My withdrawal before that was not that long ago, but I suppose my state's rules may have changed in the meantime.
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Re: Taxing ?

Postby jsl11 » Sat Jun 29, 2013 12:13 pm

retiredjg wrote:
jsl11 wrote: Perhaps the website "knows" that your state requires withholding.

It has not asked about withholding state taxes before that I recall. It is possible I just don't recall correctly, but I remember being surprised last week when that question came up. My withdrawal before that was not that long ago, but I suppose my state's rules may have changed in the meantime.

In any case, thanks for the "heads up". The next time I make a withdrawal, I will ask again to make sure.
Jeff
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Re: Taxing ?

Postby Default User BR » Sat Jun 29, 2013 12:57 pm

jsl11 wrote:My state does not require withholding, so Vanguard will not withhold state income taxes for me. This is an inconvenience and I wish Vanguard would change this policy.

Does your state require periodic payments? Otherwise, if you can just pay when you file your taxes, there would be no need for withholding.


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Re: Taxing ?

Postby jsl11 » Sat Jun 29, 2013 4:39 pm

Default User BR wrote:
jsl11 wrote:My state does not require withholding, so Vanguard will not withhold state income taxes for me. This is an inconvenience and I wish Vanguard would change this policy.

Does your state require periodic payments? Otherwise, if you can just pay when you file your taxes, there would be no need for withholding.Brian

Ohio requires advance payments. I have to have taxes withheld someplace, or I have to make estimated payments.
Jeff
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Re: Taxing ?

Postby jsl11 » Wed Jul 03, 2013 1:43 pm

jsl11 wrote:
retiredjg wrote:
jsl11 wrote: Perhaps the website "knows" that your state requires withholding.

It has not asked about withholding state taxes before that I recall. It is possible I just don't recall correctly, but I remember being surprised last week when that question came up. My withdrawal before that was not that long ago, but I suppose my state's rules may have changed in the meantime.

In any case, thanks for the "heads up". The next time I make a withdrawal, I will ask again to make sure.
Jeff

I spoke to a Vanguard CR today and asked about withholding for my state. I was told that Vanguard will not withhold for Ohio. Perhaps it is different for other states that do not require such withholding. Vanguard will withhold when it is required.
Jeff
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