state income tax withheld from IRA distribution?
state income tax withheld from IRA distribution?
Why does Vanguard not allow state income taxes to be withheld from an IRA distribution for states that it is not mandatory?
Last edited by billjudy on Tue Jul 29, 2014 8:56 pm, edited 1 time in total.
Re: state income tax withheld from IRA distribution?
Lower cost. They do what they have to, not what you want them to do.
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Re: state income tax withheld from IRA distribution?
Why do want that withheld?
Re: state income tax withheld from IRA distribution?
You could move to 9 states with no income tax.
Chaz |
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Re: state income tax withheld from IRA distribution?
That's a lot of moving.chaz wrote:You could move to 9 states with no income tax.
Re: state income tax withheld from IRA distribution?
Evading the tax collector by residing in 1 of the 9.placeholder wrote:That's a lot of moving.chaz wrote:You could move to 9 states with no income tax.
Chaz |
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“Money is better than poverty, if only for financial reasons." Woody Allen |
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http://www.bogleheads.org/wiki/index.php/Main_Page
Re: state income tax withheld from IRA distribution?
Based on my personal experience, there's no hard-and-fast rule. StateFarmBank and Alliant will withhold CA tax on IRA distributions, if requested. USAA (on my after-tax CD) would not, nor will my wife's pension administrator (although both withhold for Federal).
Re: state income tax withheld from IRA distribution?
Just for information: Fidelity does withhold federal and state taxes based on your requested percent for South Carolina for IRA distributions.
Re: state income tax withheld from IRA distribution?
I don't think you are correct. I just did an inherited IRA distribution. I live in NJ. WIthholding is not mandatory but they would have let me withhold I think.
Re: state income tax withheld from IRA distribution?
TSP will not withhold state income taxes.
Gordon
Re: state income tax withheld from IRA distribution?
Vanguard withheld my N.J. state tax on IRA distribution.. don't know about mandatory/non-mandatory factor.
Re: state income tax withheld from IRA distribution?
Vanguard has five rules depending on where you live. I will let you figure out which applies to your state.
Note that the OP's premise is still wrong. Find the states where withholding is not mandatory but still possible.If federal tax is withheld, state tax withholding is mandatory. Vanguard will automatically withhold the minimum required by your state unless you specify a higher amount below.
If federal tax is withheld, state tax withholding is mandatory unless you specifically elect not to have state tax withheld. Vanguard will automatically withhold the minimum required by your state unless you either check the Don’t withhold box or specify a higher amount below.
If federal tax is withheld, state tax withholding is mandatory if your distribution is subject to the federal early withdrawal penalty. Vanguard will automatically withhold the minimum required by your state unless you specify a higher amount below.
State tax may be withheld regardless of your federal withholding election. Vanguard will or won’t withhold as you instruct below. If no box is checked, we won’t withhold.
If you aren’t a resident of a state listed above, skip to Section 6, as state tax withholding isn’t available for you at this time.
for states that it is not mandatory
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Re: state income tax withheld from IRA distribution?
My friend has an inherited IRA with Fidelity and can choose how much, if any, he wants to have withhheld in state (NY) and federal income taxes from his RMD.
Re: state income tax withheld from IRA distribution?
And what would Vanguard do? Which rule would apply to your friend? Does Vanguard have a different rule from Fidelity for residents of NY?scrabbler1 wrote:My friend has an inherited IRA with Fidelity and can choose how much, if any, he wants to have withhheld in state (NY) and federal income taxes from his RMD.
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Re: state income tax withheld from IRA distribution?
Sorry, neither of us are Vanguard clients so I am not familiar wth their website or their rules about state income taxes withheld on IRA distributions. I would hope both are flexible like Fidelity's website is.sscritic wrote:And what would Vanguard do? Which rule would apply to your friend? Does Vanguard have a different rule from Fidelity for residents of NY?scrabbler1 wrote:My friend has an inherited IRA with Fidelity and can choose how much, if any, he wants to have withhheld in state (NY) and federal income taxes from his RMD.
Re: state income tax withheld from IRA distribution?
Vanguard will not withhold income tax for Ohio. If I make an IRA withdrawal, I must make other arrangements to pay the tax. It is an inconvenience, and I have asked them to change the policy. So far, they have not.
Jeff
Jeff
Re: state income tax withheld from IRA distribution?
Yes, Ohio is one of the states subject to the fifth rule, i.e., it is not listed above.jsl11 wrote:Vanguard will not withhold income tax for Ohio. If I make an IRA withdrawal, I must make other arrangements to pay the tax. It is an inconvenience, and I have asked them to change the policy. So far, they have not.
Jeff
By my count, there are twenty-four states listed above.If you aren’t a resident of a state listed above, skip to Section 6, as state tax withholding isn’t available for you at this time.
Re: state income tax withheld from IRA distribution?
So here are my questions:
Why does Vanguard divided the states into five different categories with different rules for each?
Are they just messing with us, or are there state laws or regulations to be followed?
If there are laws, are they permissive or restrictive?
Do other providers follow the same laws?
Why does Vanguard divided the states into five different categories with different rules for each?
Are they just messing with us, or are there state laws or regulations to be followed?
If there are laws, are they permissive or restrictive?
Do other providers follow the same laws?
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Re: state income tax withheld from IRA distribution?
I can confirm Vanguard will withhold income tax for California...... but the tax rate is double that of Ohio.jsl11 wrote: Vanguard will not withhold income tax for Ohio. If I make an IRA withdrawal, I must make other arrangements to pay the tax. It is an inconvenience, and I have asked them to change the policy. So far, they have not.
Jeff
Count your blessings.
JW
Retired at Last
Re: state income tax withheld from IRA distribution?
I had no problem at Schwab having state taxes withheld from IRA withdrawal. Did required 10% minimum Fed tax withholding as part of the deal and 1% non-taxes distribution, so maximum state % was 89.
Re: state income tax withheld from IRA distribution?
I don't understand why Vanguard can withhold tax for 24 states, but not for the others that have income taxes. I cannot imagine that the states would refuse to take money from Vanguard. Vanguard is already set up to withhold for some states, so why not offer the service for the others?sscritic wrote:Yes, Ohio is one of the states subject to the fifth rule, i.e., it is not listed above.jsl11 wrote:Vanguard will not withhold income tax for Ohio. If I make an IRA withdrawal, I must make other arrangements to pay the tax. It is an inconvenience, and I have asked them to change the policy. So far, they have not.
JeffBy my count, there are twenty-four states listed above.If you aren’t a resident of a state listed above, skip to Section 6, as state tax withholding isn’t available for you at this time.
Jeff
Re: state income tax withheld from IRA distribution?
I gave one possible answer in a previous post: because they want to mess with us.jsl11 wrote: I don't understand why Vanguard can withhold tax for 24 states, but not for the others that have income taxes. I cannot imagine that the states would refuse to take money from Vanguard. Vanguard is already set up to withhold for some states, so why not offer the service for the others?
Jeff
I also gave another possible answer, which I won't repeat.
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Re: state income tax withheld from IRA distribution?
I think it's as simple as there is a cost for doing this and Vanguard is a cheap low cost fund company. So they do it only if the state requires it.jsl11 wrote: I don't understand why Vanguard can withhold tax for 24 states, but not for the others that have income taxes. I cannot imagine that the states would refuse to take money from Vanguard. Vanguard is already set up to withhold for some states, so why not offer the service for the others?
Jeff
Many us appreciate rock bottom costs.
JW
Retired at Last
Re: state income tax withheld from IRA distribution?
Although this is pick on Vanguard week, let's not forget other providers.
Here is Fidelity:
Now someone else check out another provider. I have provided facts for two; it's someone else's turn to go fact finding.
Here is Fidelity:
Eleven states are listed; some don't have an income tax and some do.No state tax withholding is available (even if your state has income tax).
Now someone else check out another provider. I have provided facts for two; it's someone else's turn to go fact finding.
Re: state income tax withheld from IRA distribution?
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Last edited by HueyLD on Sat Feb 07, 2015 2:34 pm, edited 1 time in total.
Re: state income tax withheld from IRA distribution?
I do not believe it is that expensive when the mechanism is already in place. All Vanguard would need is an account number to transfer into for each state, and the taxpayer ID number to credit the proper account. Vanguard already has our taxpayer ID numbers. Accordingly, it would be just a simple choice on the withdrawal page, and the computers would take care of the rest. It would probably cost less to do that than have their CRs explain to many people why they cannot have their taxes withheld.
Jeff
Jeff
Re: state income tax withheld from IRA distribution?
If it is so easy, why won't Fidelity do it? Have you checked with other providers? Do they do it?jsl11 wrote:I do not believe it is that expensive when the mechanism is already in place. All Vanguard would need is an account number to transfer into for each state, and the taxpayer ID number to credit the proper account. Vanguard already has our taxpayer ID numbers. Accordingly, it would be just a simple choice on the withdrawal page, and the computers would take care of the rest. It would probably cost less to do that than have their CRs explain to many people why they cannot have their taxes withheld.
Jeff
You say it is easy, but perhaps when you get down to the nuts and bolts, it isn't as easy as you think.
Re: state income tax withheld from IRA distribution?
I may be reading this incorrectly, but, if you are saying that Fidelity does not withhold State tax from IRA distributions, you are incorrect. I have been having withholding, Federal and state, taken out for the last 12 years. One of the reasons that I do not use Vanguard is because I am in one of the states they will not do withholding, I have been asking for 12 years. Or are you just referring to 11 states listed somewhere on their site? Where did you find that quote please?sscritic wrote:Although this is pick on Vanguard week, let's not forget other providers.
Here is Fidelity:Eleven states are listed; some don't have an income tax and some do.No state tax withholding is available (even if your state has income tax).
Now someone else check out another provider. I have provided facts for two; it's someone else's turn to go fact finding.
Re: state income tax withheld from IRA distribution?
Yes, you are reading it incorrectly. I did not say that Fidelity would not withhold from 50 states, I said they would not withhold from one category of states, of which there are eleven. (I was writing in the context of this thread where I had previously reported that Vanguard put states into categories.)mapleosb wrote:I may be reading this incorrectly, but, if you are saying that Fidelity does not withhold State tax from IRA distributions, you are incorrect. I have been having withholding, Federal and state, taken out for the last 12 years. One of the reasons that I do not use Vanguard is because I am in one of the states they will not do withholding, I have been asking for 12 years. Or are you just referring to 11 states listed somewhere on their site? Where did you find that quote please?sscritic wrote:Eleven states are listed; some don't have an income tax and some do.No state tax withholding is available (even if your state has income tax).
Fidelity, like Vanguard, puts different states into different categories. Not all states are treated equally. Vanguard has five categories; Fidelity has nine categories. The number of states in each category at Fidelity is 11, 7, 3, 1, 1, 1, 1, 1, and the rest (25 unspecified states, since D.C. is include in another category). Fidelity has different rules for different states, just as Vanguard does.
I am still waiting for a report on another provider. Are Fidelity and Vanguard really the only places that bogleheads have IRAs?
Re: state income tax withheld from IRA distribution?
OK, I will give the results for a third provider. TIAA-CREF has a spaghetti bowl full of forms and rules. Single payments, periodic payments, rollover eligible, non-rollover eligible, brokerage, and who knows how many more. My head hurts.
Here is just one:
Here is just one:
3. Withholding Election (Choose one)

Based on your state of legal residence, state income taxes will be withheld
from your payments at the following rate, unless you choose one of the available options.
Arkansas 3%
California 10% of federal withholding
Delaware 5%
District of Columbia* 8.95%
Georgia No Withholding
Iowa** 5%
Kansas No Withholding
Maine 5%
Maryland No Withholding
Massachusetts 5.20%
Michigan 4.25%
Nebraska 5%
North Carolina 4%
Oklahoma 5%
Oregon 8%
Vermont 24% of federal withholding
Virginia 4%
If you would like state withholding from your distribution in an amount OTHER THAN the state prescribed rate, please check the appropriate box below and indicate your election.* District of Columbia residents: The default is”no withholding”, however, withholding will apply and you cannot opt out if you are taking a lump sum of your entire account.
** Iowa residents: If you do not make a state election and your payments are less than $6,000 per payment, there will be no state withholding.
I choose the following percentage be withheld from the taxable portion of my payment:   %
I choose NOT to have taxes withheld from my payment or my distribution is exempt. (For Iowa, Maine, Massachusetts and Nebraska Only: You can elect no state withholding only if you have elected no federal withholding.)
For Massachusetts Only: Instead of electing a fixed percentage, I choose : (May select more than one option)
- Total number of withholding allowances
Head of Household
Withhold the following ADDITIONAL amount from each payment $
Re: state income tax withheld from IRA distribution?
Thank yousscritic wrote: Yes, you are reading it incorrectly.
Re: state income tax withheld from IRA distribution?
A better question is why don't all states require it? Why are they willing to wait to get money when the Federal Gov won't. I wish VG would allow withholding as an option on all distributions. Once the programming was done I would assume any additional costs would be marginal.
Re: state income tax withheld from IRA distribution?
I live in NJ, and I have NJ tax withheld from my Vanguard Inherited IRA distribution, and it is certainly not mandatory. I had it set to zero until this year.HueyLD wrote:O.k., folks. Vanguard made a carefully decision to withhold state taxes only when required by law. It is expensive to have to collect and file taxes with states.
It's one way to hold down the cost. If tax withholding is important to you, you may want to transfer your money elsewhere. It's hard to have the cake and eat it too.
Re: state income tax withheld from IRA distribution?
Excuse me. I take a distribution from Vanguard at age 50. They withhold federal tax. I open an IRA at Fidelity* and send them a check equal to the total withdrawal, what I got plus what the IRS got. I have to have a spare amount in my checking account equal to the withholding.Dandy wrote:A better question is why don't all states require it?
Now if there had been state withholding, I would have to come up with even more money out of my checking account to avoid early withdrawal tax and penalties. No thank you.
* I actually can just change my mind and send it back to Vanguard within 60 days. I still need to come up with the extra money to cover the withholding. Less withholding is better.
P.S. Don't you like a good float when you can get one? Do you always get a tax refund because you like giving money to the feds and your state early? Once again, no thank you. Let me decide when I want to pay my taxes.
Re: state income tax withheld from IRA distribution?
Ah, NJ.Tom_T wrote: I live in NJ, and I have NJ tax withheld from my Vanguard Inherited IRA distribution, and it is certainly not mandatory. I had it set to zero until this year.
Different strokes for different folks, that's the Vanguard (and Fidelity and TIAA) way.State tax may be withheld regardless of your federal withholding election. Vanguard will or won’t withhold as you instruct below.
Re: state income tax withheld from IRA distribution?
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Last edited by HueyLD on Sat Feb 07, 2015 2:34 pm, edited 1 time in total.
Re: state income tax withheld from IRA distribution?
The may is yours, not theirs. You may by so indicating. No withholding is the default.
Re: state income tax withheld from IRA distribution?
P.S. Don't you like a good float when you can get one? Do you always get a tax refund because you like giving money to the feds and your state early? Once again, no thank you. Let me decide when I want to pay my taxes.
I love a good float.
I was speaking from the State's point of view. They are all (most) hungry for revenue, loath to raise taxes, getting less revenue from gas tax since vehicles use less gas, etc -- just surprised they haven't all required getting money early instead of tricks like raiding the highway fund or pension contributions.
I love a good float.
I was speaking from the State's point of view. They are all (most) hungry for revenue, loath to raise taxes, getting less revenue from gas tax since vehicles use less gas, etc -- just surprised they haven't all required getting money early instead of tricks like raiding the highway fund or pension contributions.
Re: state income tax withheld from IRA distribution?
Got it. Of course that's just cash flow, not real revenue, assuming your citizens aren't tax cheats. The other way to look at it: they get the float, you don't. That does make sense from the state's point of view.Dandy wrote: I was speaking from the State's point of view. They are all (most) hungry for revenue, loath to raise taxes, getting less revenue from gas tax since vehicles use less gas, etc -- just surprised they haven't all required getting money early instead of tricks like raiding the highway fund or pension contributions.
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Re: state income tax withheld from IRA distribution?
As we have discussed in other threads over the years, withholding is the best way to remain in that "safe harbor" to avoid penalties for underwithholding. With my friend's Fidelity (Inherited) IRA, we use the RMD to keep him in one of those safe harbors because he has a lot of investment income with no federal or state income taxes withheld. By having state income taxes withheld, we not only solve his safe harbor issue on the state side but we can also deduct it on his federal return instead of waiting another year. This worked well in 2013, the first year he had to take a RMD, and we plan to do it again later this year.
Re: state income tax withheld from IRA distribution?
It is true that withholding is preferable to estimated payments on the margin (of penalty or no penalty) at the federal level, and may be at the state level depending how the state figures the penalty. However, an estimated state tax payment made in December, 2014, is deductible on your 2014 federal return; there is no need to wait a year. Waiting until 2015 to pay your state tax does make you wait until you file your 2015 federal return to get the deduction.scrabbler1 wrote:With my friend's Fidelity (Inherited) IRA, we use the RMD to keep him in one of those safe harbors because he has a lot of investment income with no federal or state income taxes withheld. By having state income taxes withheld, we not only solve his safe harbor issue on the state side but we can also deduct it on his federal return instead of waiting another year.
Note that this is an area with the potential for bunching if you are only marginally able to use itemized deductions. Pay 2015 tax in 2015 and also make 2016 estimated tax payments in 2015. In 2016, pay as little as you can. In 2017, double up again. Bunch your property taxes if you can as well; you will enjoy the double dip.
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Re: state income tax withheld from IRA distribution?
Inherited ira. I got to check off the boxes. Small amount (500) nherited. If you have a large amount, financial institution .at not have a choice to give to you. Uncle wants to be sure it gets its rightful share.
So how much are you taking out?
So how much are you taking out?
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Re: state income tax withheld from IRA distribution?
We have had several threads about this over the years and I am quite aware of both concepts. Neither apply to my friend and his inherited IRA but they do apply to me. I frequently review my ability to bunch although I have to see its impact on the ACA subsidy because if I itemize, I will have to report my state school tax rebate as income and that counts toward the MAGI which is used to determine the subsidy. I am near the top end of the income limit for ACA subsidies so adding that "income" may cause me to lose some or all of the aubsidy. It's complicated.sscritic wrote:It is true that withholding is preferable to estimated payments on the margin (of penalty or no penalty) at the federal level, and may be at the state level depending how the state figures the penalty. However, an estimated state tax payment made in December, 2014, is deductible on your 2014 federal return; there is no need to wait a year. Waiting until 2015 to pay your state tax does make you wait until you file your 2015 federal return to get the deduction.scrabbler1 wrote:With my friend's Fidelity (Inherited) IRA, we use the RMD to keep him in one of those safe harbors because he has a lot of investment income with no federal or state income taxes withheld. By having state income taxes withheld, we not only solve his safe harbor issue on the state side but we can also deduct it on his federal return instead of waiting another year.
Note that this is an area with the potential for bunching if you are only marginally able to use itemized deductions. Pay 2015 tax in 2015 and also make 2016 estimated tax payments in 2015. In 2016, pay as little as you can. In 2017, double up again. Bunch your property taxes if you can as well; you will enjoy the double dip.
Re: state income tax withheld from IRA distribution?
Before I did this for state income taxes, I would want to confirm that in the particular state, estimated payments for tax year 201X (next year) can be made in the current year. Otherwise you may just get a much bigger refund than you thought. Or am I misunderstanding something?sscritic wrote:It is true that withholding is preferable to estimated payments on the margin (of penalty or no penalty) at the federal level, and may be at the state level depending how the state figures the penalty. However, an estimated state tax payment made in December, 2014, is deductible on your 2014 federal return; there is no need to wait a year. Waiting until 2015 to pay your state tax does make you wait until you file your 2015 federal return to get the deduction.scrabbler1 wrote:With my friend's Fidelity (Inherited) IRA, we use the RMD to keep him in one of those safe harbors because he has a lot of investment income with no federal or state income taxes withheld. By having state income taxes withheld, we not only solve his safe harbor issue on the state side but we can also deduct it on his federal return instead of waiting another year.
Note that this is an area with the potential for bunching if you are only marginally able to use itemized deductions. Pay 2015 tax in 2015 and also make 2016 estimated tax payments in 2015. In 2016, pay as little as you can. In 2017, double up again. Bunch your property taxes if you can as well; you will enjoy the double dip.
Re: state income tax withheld from IRA distribution?
I messed up. Sorry.pshonore wrote:Before I did this for state income taxes, I would want to confirm that in the particular state, estimated payments for tax year 201X (next year) can be made in the current year. Otherwise you may just get a much bigger refund than you thought. Or am I misunderstanding something?sscritic wrote:However, an estimated state tax payment made in December, 2014, is deductible on your 2014 federal return; there is no need to wait a year. Waiting until 2015 to pay your state tax does make you wait until you file your 2015 federal return to get the deduction.
Note that this is an area with the potential for bunching if you are only marginally able to use itemized deductions. Pay 2015 tax in 2015 and also make 2016 estimated tax payments in 2015. In 2016, pay as little as you can. In 2017, double up again. Bunch your property taxes if you can as well; you will enjoy the double dip.
The first part is correct: state estimated taxes paid in 2014 for 2014 are deductible on your 2014 federal return. The second part is messed up. The idea is correct, but the dates are wrong.
Say you started last year. You made an estimated state payment for 2013 in January 2014. You paid the remainder of your 2013 state tax in April 2014. You make your last estimated 2104 state tax payment in December of 2014. That could be six state tax payments, all made in 2014 for two different tax years. If you have done it right, you neither owe nor get a refund on your 2014 return filed in April 2015.* You make no estimated tax payments the rest of 2015. Of course, you want to stay within your state's safe harbor to avoid penalties.
Now start over. You make an estimated payment on your 2015 taxes in January 2016. You pay the remainder of your 2015 state tax in April 2016. yada yada. Just stay on the two year cycle.
* The worst thing you can do is make a state estimated payment in January and get a state refund. Since the refund is partially from payments made in 2013 and partially from the January 2014 payment, only part of it was deducted when you did your 2013 federal return (unless you used the standard deduction in 2013, which is the goal - itemize in the even, standard in the odd). Now you get to learn about recoveries. I did the hard way.
On second thought, it might not be worth all the trouble.