Vanguard's Automatic RMD Service - Four Options

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Electron
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Vanguard's Automatic RMD Service - Four Options

Post by Electron »

Has anyone else noticed limitations in Vanguard's Automatic RMD Service?

The service offers four choices on how to specify the withdrawal from multiple funds within an IRA Account.

1. Specify dollar amount for each fund
2. Specify percentage for each fund
3. Equal percentage
4. Proportional

They show the required RMD in dollars. The numbers you specify must add up correctly to proceed to the next step.

In choices 1 & 2, you cannot exclude a fund by entering $0.00 or 0%. In choices 3 & 4 you can place a check in a box to include only the specified funds. However, the remaining amounts are calculated automatically to be either equal or proportional.

Overall, these capabilities seem adequate for most people. However, it doesn't seem that full flexibility is offered that might help in rebalancing a portfolio at the same time.
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Re: Vanguard's Automatic RMD Service - Four Options

Post by investor »

I have RMD on autopilot and from one fund. Since the funds are within an IRA you can re-balance at will with no tax problems. Don;'t see where there is a problem.

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tomd37
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Re: Vanguard's Automatic RMD Service - Four Options

Post by tomd37 »

For the last four or five years I have taken my RMD from just one fund, usually the US total stock market index fund since that is where the most of my gain has been and doing so allows me to rebalance as might be needed. I also direct them to withhold a certain percentage for federal tax. I take my RMD November having already calculated the amount of federal tax I need to be withheld to get me within a couple hundred dollars of the amount I owe the IRS at year end.

Vanguard does send me and my spouse a letter in January of each year telling us how much each of us has to withdraw by December 31st. I do not use a withdrawal schedule.
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Re: Vanguard's Automatic RMD Service - Four Options

Post by SeeMoe »

An analyst advised me to adjust our IRA's to all bonds, and take a lump sum RMD at the end of each year before 31 December...Then we sweep the lump sum into a PMM in the taxable folio as a " spending fund ." Plus we usually add to the PMM from our bank account during the year if no big ticket items are purchased, sweeping year end excess into the funds needing rebalancing within the allocation scheme,..33.
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CABob
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Re: Vanguard's Automatic RMD Service - Four Options

Post by CABob »

I have used the proportional option for a number of years and have found that it and tends to not throw off the allocations significantly. The RMD is directed to a taxable money market fund which then must be reallocated to some extent in consideration of the desired overall allocation. To try to address the RMD and reallocation in one step is more that I want to try to do.
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Re: Vanguard's Automatic RMD Service - Four Options

Post by Electron »

Thanks all for your replies. The only real issue is that you can't specify $0.00 or 0% in the first two choices. If you wanted your RMD to come out of three funds as 0%, 20%, and 80%, you cannot do it as far as I can tell. A second manual step would be required. However, the system does allow 1%, 19%, and 80%. It would seem that the software design for the RMD service is incomplete.

I agree that the best choice for many retirees would be a selection that can stay on autopilot for many years without change. Rebalancing can be a separate step.

You do have to be careful with the RMD Service in one regard. Vanguard defines the RMD amounts for each fund in January and those amounts will remain through December without any change. If any changes are made to that IRA portfolio you have to make sure that the original RMD amounts for each fund are still valid. If not, you need to delete the existing automatic RMD and create a new one.
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Re: Vanguard's Automatic RMD Service - Four Options

Post by bertilak »

Electron wrote:Thanks all for your replies. The only real issue is that you can't specify $0.00 or 0% in the first two choices. If you wanted your RMD to come out of three funds as 0%, 20%, and 80%, you cannot do it as far as I can tell. A second manual step would be required. However, the system does allow 1%, 19%, and 80%. It would seem that the software design for the RMD service is incomplete.

I agree that the best choice for many retirees would be a selection that can stay on autopilot for many years without change. Rebalancing can be a separate step.

You do have to be careful with the RMD Service in one regard. Vanguard defines the RMD amounts in January and those amounts will remain through December without any change. If any changes are made to that IRA portfolio you have to make sure that the original RMD amounts are still valid. If not, you need to delete the existing automatic RMD and create a new one.
Really?

My understanding is that the amount of THIS year's RMD is entirely based on LAST year's ending balance and does not change for the year.

ANY money taken out of the IRA through the year is a distribution and counts towards the required minimum for the year. I was under the impression that Vanguard took that into account and told you how much of a distribution still remained in order to meet the required minimum.

Have I given them more credit than they deserve?

Next year will be the first time I have an RMD to deal with so I suppose I have some things to learn yet.
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Re: Vanguard's Automatic RMD Service - Four Options

Post by Electron »

bertilak wrote:My understanding is that the amount of THIS year's RMD is entirely based on LAST year's ending balance and does not change for the year.

ANY money taken out of the IRA through the year is a distribution and counts towards the required minimum for the year. I was under the impression that Vanguard took that into account and told you how much of a distribution still remained in order to meet the required minimum.

Have I given them more credit than they deserve?

Next year will be the first time I have an RMD to deal with so I suppose I have some things to learn yet.
The total RMD in dollars is based on the previous 12-31 balance as you stated. The automatic RMD to my knowledge does not take into account any withdrawals done separately during the year. Vanguard defines the RMD in dollars for each fund in January based on your RMD service selection such as equal or proportional. A printed statement and agreement is mailed in January showing the RMD dollar amounts for each fund. Fund changes during the year can be a problem. An example might be deleting a fund or having the balance decline below the amount defined in January.

Here is an earlier thread with some detailed information.

http://www.bogleheads.org/forum/viewtop ... 1&t=138966

If your automatic RMD is set up for monthly or quarterly withdrawals, the website will show withdrawals year-to-date and any remaining obligation. However, I don't believe they accommodate withdrawals separate from the automatic service. The detailed agreement sent in January should provide some answers.
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Re: Vanguard's Automatic RMD Service - Four Options

Post by tomd37 »

I do not agree with Electron. Vanguard tells you in January of each year what the total RMD is for that year for Vanguard funds. They do not tell you how much it is for each account nor do they tell you from where it has to be taken. In fact, if you have other similar IRA accounts with other firms (e.g. Fidelity), you do not have to take anything from Vanguard if you so desire. You can take the total of ALL required RMDs from Fidelity if you so desire. 401k distributions is a different matter.
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Re: Vanguard's Automatic RMD Service - Four Options

Post by Electron »

tomd37 - My statements were regarding the Automatic RMD service once it is set up. You are correct on the general rules for RMDs from multiple IRAs.

bertilak - Here is the relevant statement in my RMD Service Agreement mailed in January.

"Any distribution you take prior to enrolling in the Service will reduce the RMD amount to be distributed through the Service in that year. After you enroll in the Service, distributions you take outside of the Service will not reduce the remaining RMD amount to be paid under the Service, except in certain instances when the Service is updated. This may result in you taking more than the minimum required amount."

I should add that you can select from the following options for each Vanguard IRA.

1. Calculation only: Calculate my RMD each year. I'll request my distribution outside of the RMD Service.

2. Calculation and distribution to your bank account: Calculate my RMD every year and move the money to my bank account.

3. Calculation and distribution to your Vanguard fund: Calculate my RMD every year and move the money to a Vanguard nonretirement account.
Last edited by Electron on Sat Jul 25, 2015 5:12 pm, edited 1 time in total.
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Re: Vanguard's Automatic RMD Service - Four Options

Post by Dan999 »

Also you can change the allocation as many times as you want during the year. I use the proportional allocation. Just go on line and edit the distribution basis.
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Re: Vanguard's Automatic RMD Service - Four Options

Post by Electron »

Dan999 wrote:Also you can change the allocation as many times as you want during the year. I use the proportional allocation. Just go on line and edit the distribution basis.
I believe any changes would result in the mailing of a new RMD service agreement with the updated dollar amounts for each fund. If you were part way through a monthly or quarterly schedule I assume they would take into account withdrawals already completed.
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Re: Vanguard's Automatic RMD Service - Four Options

Post by cherijoh »

Did you try to leave the % blank for the fund from which you want to take no distribution , but make sure that the other percentages total 100%? I know this seems silly, but it sounds like the programmer put a data validation check that any entry must be > 0 and <=100% under the assumption that if you wanted 0% from that fund you would leave it blank. I have had the converse problem - where I leave it blank and the program demands that I fill in lots of zeros.
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Re: Vanguard's Automatic RMD Service - Four Options

Post by Electron »

cherijoh wrote:Did you try to leave the % blank for the fund from which you want to take no distribution, but make sure that the other percentages total 100%? I know this seems silly, but it sounds like the programmer put a data validation check that any entry must be > 0 and <=100% under the assumption that if you wanted 0% from that fund you would leave it blank. I have had the converse problem - where I leave it blank and the program demands that I fill in lots of zeros.
Thank you! Leaving a box blank does indeed work and entering zero results in an error message. They do include an error check where RMD percentages must add up to 100%, or RMD dollar amounts must add up to the specified RMD.
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Re: Vanguard's Automatic RMD Service - Four Options

Post by cherijoh »

Electron wrote:
cherijoh wrote:Did you try to leave the % blank for the fund from which you want to take no distribution, but make sure that the other percentages total 100%? I know this seems silly, but it sounds like the programmer put a data validation check that any entry must be > 0 and <=100% under the assumption that if you wanted 0% from that fund you would leave it blank. I have had the converse problem - where I leave it blank and the program demands that I fill in lots of zeros.
Thank you! Leaving a box blank does indeed work and entering zero results in an error message. They do include an error check where RMD percentages must add up to 100%, or RMD dollar amounts must add up to the specified RMD.
I'm glad to hear that it worked. :D
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Re: Vanguard's Automatic RMD Service - Four Options

Post by Dan999 »

Electron wrote:
Dan999 wrote:Also you can change the allocation as many times as you want during the year. I use the proportional allocation. Just go on line and edit the distribution basis.
I believe any changes would result in the mailing of a new RMD service agreement with the updated dollar amounts for each fund. If you were part way through a monthly or quarterly schedule I assume they would take into account withdrawals already completed.
I try not to make any changes a couple of days before the monthly distribution date. Yes, you do get a new RMD statement in the mail, but the change is effective immediately.
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