RMD Vanguard state tax withholding

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communipaw
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RMD Vanguard state tax withholding

Post by communipaw » Sun Mar 22, 2015 10:53 am

Last year I began having to take RMDs from my Vanguard IRA.

Although federal tax is withheld, Vanguard won't/can't withhold the state tax and it's annoying to juggle my pension's state withholding to have the RMD at least partly covered for state tax.

Vanguard is known as a thrifty company and maybe it's trying to hold down expenses by not withholding the the state tax. But do other large mutual fund companies [Fidelity, American Funds, T Rowe Price, etc.] also refuse to withhold state tax from RMDs?

CAMEL
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Re: RMD Vanguard state tax withholding

Post by CAMEL » Sun Mar 22, 2015 11:34 am

Fidelity does withhold state taxes. See page 8 of this retirement withdrawal form ( https://www.fidelity.com/bin-public/060 ... equest.pdf ) for the somewhat complicated state tax withholding mechanism.

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SpringMan
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Re: RMD Vanguard state tax withholding

Post by SpringMan » Sun Mar 22, 2015 11:43 am

I spoke to Vanguard about this and was told, if requested, they do withhold both federal and state tax from RMDs. Maybe It varies by state, I am in Michigan.
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minesweep
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Re: RMD Vanguard state tax withholding

Post by minesweep » Sun Mar 22, 2015 12:14 pm


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SpringMan
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Re: RMD Vanguard state tax withholding

Post by SpringMan » Sun Mar 22, 2015 12:59 pm

It does vary by state. From the other thread. https://personal.vanguard.com/pdf/s316.pdf?2210068614
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sport
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Re: RMD Vanguard state tax withholding

Post by sport » Sun Mar 22, 2015 1:52 pm

I have been complaining to Vanguard about this. I have been told that Vanguard will withhold state income taxes for states that require them to do so. However, if a state does not have such a requirement, Vanguard will not withhold for that state. My state does not have such a requirement. So, I have to make other arrangements to pay the taxes. It is an inconvenience, and I have told Vanguard that I feel they should change their policy on this. So far, I have not been successful in getting them to change. Nevertheless, I will keep asking. Perhaps if enough clients complain, Vanguard will reconsider their position.

Levett
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Re: RMD Vanguard state tax withholding

Post by Levett » Sun Mar 22, 2015 1:56 pm

As with SpringMan, Vanguard does withhold my state (MI) tax on my RMD.

Lev

RadAudit
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Re: RMD Vanguard state tax withholding

Post by RadAudit » Sun Mar 22, 2015 4:21 pm

jsl11 wrote:I have been complaining to Vanguard about this. I have been told that Vanguard will withhold state income taxes for states that require them to do so. However, if a state does not have such a requirement, Vanguard will not withhold for that state.


How about writing your state representatives and governor and tell them they are missing out on oodles of tax money? That bill ought to get through your state legislature in record time.
FI is the best revenge. LBYM. Invest the rest. Stay the course.

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SpringMan
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Re: RMD Vanguard state tax withholding

Post by SpringMan » Sun Mar 22, 2015 4:28 pm

RadAudit wrote:
jsl11 wrote:I have been complaining to Vanguard about this. I have been told that Vanguard will withhold state income taxes for states that require them to do so. However, if a state does not have such a requirement, Vanguard will not withhold for that state.


How about writing your state representatives and governor and tell them they are missing out on oodles of tax money? That bill ought to get through your state legislature in record time.

Whether Vanguard withholds tax from RMDs or not does not change one's tax obligation. I don't see how anyone is missing out on oodles of tax money.
Best Wishes, SpringMan

RadAudit
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Re: RMD Vanguard state tax withholding

Post by RadAudit » Sun Mar 22, 2015 4:37 pm

SpringMan wrote:Whether Vanguard withholds tax from RMDs or not does not change one's tax obligation. I don't see how anyone is missing out on oodles of tax money.


If one takes their RMDs on a monthly basis, and files his state taxes in April of the following year, the state is missing out on holding on to your tax money for an average of 9 months [The total annual tax due for 1/2 of the year (1/12th each month) plus the three months in the next year to file.] That cash flow is worth money to the state because they don't have to borrow as much money during the year to meet expenses.

It's similar to why the feds request you withhold tax money from your paycheck.
FI is the best revenge. LBYM. Invest the rest. Stay the course.

jebmke
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Re: RMD Vanguard state tax withholding

Post by jebmke » Sun Mar 22, 2015 4:39 pm

RadAudit wrote:
SpringMan wrote:Whether Vanguard withholds tax from RMDs or not does not change one's tax obligation. I don't see how anyone is missing out on oodles of tax money.


If one takes their RMDs on a monthly basis, and files his state taxes in April of the following year, the state is missing out on holding on to your tax money for an average of 9 months [The total annual tax due for 1/2 of the year (1/12th each month) plus the three months in the next year to file.] That cash flow is worth money to the state because they don't have to borrow as much money during the year to meet expenses.

Even if you don't withhold you may still have to pay quarterly estimated taxes if you want to avoid underpayment penalties. So the timing difference isn't that great.
When you discover that you are riding a dead horse, the best strategy is to dismount.

sport
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Re: RMD Vanguard state tax withholding

Post by sport » Sun Mar 22, 2015 4:50 pm

If you take the RMD in December, there is no withholding until then. That could make it worse for the state. So, it can be a plus, neutral, or a negative for the state. The way it is now is just makes it inconvenient for some Vanguard clients. Since Vanguard is already set up to do this for other states, it should not be difficult or expensive to do it for all states.

RadAudit
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Re: RMD Vanguard state tax withholding

Post by RadAudit » Sun Mar 22, 2015 4:53 pm

jebmke wrote:en if you don't withhold you may still have to pay quarterly estimated taxes if you want to avoid underpayment penalties. So the timing difference isn't that great.


Very true.

You must live in a more prosperous state than I do - or maybe I have a harsher opinion of my state legislature than you have of yours.(OK. I'm just probably meaner than you are.) "Isn't that great" probably wouldn't work as a good counter argument in my state legislature if they thought they could get the money even 24 hours sooner.
FI is the best revenge. LBYM. Invest the rest. Stay the course.

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