Joint or Individual for new taxable account at Vanguard?

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GaryA505
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Joint or Individual for new taxable account at Vanguard?

Post by GaryA505 »

I'm opening a new taxable account at Vanguard and don't know which account type to select - Individual or Joint. Does it really make any difference? I've read the other threads on this forum and it's still not clear to me.

I already have 2 accounts at Vanguard, a Rollover IRA and Roth. Both are in my name only, and my wife is the beneficiary on both. I handle all of the finances for us.

My understanding it that it matters when you pass away, but if you have an Individual account with your spouse named as beneficiary it's all good. Is that right?
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Re: Joint or Individual for new taxable account at Vanguard?

Post by GaryA505 »

Also, there's the basis step-up question. I believe that in a community property state (such as ours), the tax code says community property assets step up 100 percent upon the death of a spouse (even though one spouse survives). I believe that a joint account would automatically be considered community property (property acquired during marriage).

So, this would suggest that there is no difference between a joint account and individual account as far as basis step-up, at least in our state.
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dm200
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Re: Joint or Individual for new taxable account at Vanguard?

Post by dm200 »

Unless there are compelling reasons to have the account individual, I would go for joint. That way, if you are not available, your spouse can conduct business.
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Re: Joint or Individual for new taxable account at Vanguard?

Post by HueyLD »

dm200 wrote: Wed Sep 06, 2017 7:21 pm Unless there are compelling reasons to have the account individual, I would go for joint. That way, if you are not available, your spouse can conduct business.
+1.
Also, there's the basis step-up question. I believe that in a community property state (such as ours), the tax code says community property assets step up 100 percent upon the death of a spouse (even though one spouse survives). I believe that a joint account would automatically be considered community property (property acquired during marriage).
You should not create a joint account unless you intend for it to be a JWROS in lieu of a Community Property WROS. Under certain state law, joint tenancy creates a rebuttable presumption that the owners do not intend property to be community property. Why take that chance??
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Re: Joint or Individual for new taxable account at Vanguard?

Post by GaryA505 »

Huey, you lost me. It's just a taxable account at Vanguard.
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Re: Joint or Individual for new taxable account at Vanguard?

Post by HueyLD »

Yes, I was only addressing taxable accounts.

What did I say that lost you?
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GaryA505
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Re: Joint or Individual for new taxable account at Vanguard?

Post by GaryA505 »

HueyLD wrote: Wed Sep 06, 2017 9:05 pm Yes, I was only addressing taxable accounts.

What did I say that lost you?
This part lost me:
"You should not create a joint account unless you intend for it to be a JWROS in lieu of a Community Property WROS. Under certain state law, joint tenancy creates a rebuttable presumption that the owners do not intend property to be community property. Why take that chance??"

But as you said "under certain state law". After more research I found is that JTWROS between spouses is not allowed in at least some community property states.

Specifically, in my case I found this:
"A 1985 revision of New Mexico statutes states “property acquired by a husband and wife by an instrument in writing, whether as tenants in common, as joint tenants or otherwise, will be presumed to be held as community property unless such property is separate property.” This means property owned as joint tenants by a husband and wife is considered as community property by New Mexico law."

So, I think an account at Vanguard opened as "Individual" or "Joint" makes little difference in this state, except that the Joint account allows a surviving spouse full and immediate access to the account without going through probate. In this state, unless you can prove that property is separate, then it's community property.
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Re: Joint or Individual for new taxable account at Vanguard?

Post by pkcrafter »

GaryA505 wrote: Wed Sep 06, 2017 5:34 pm I'm opening a new taxable account at Vanguard and don't know which account type to select - Individual or Joint. Does it really make any difference? I've read the other threads on this forum and it's still not clear to me.

I already have 2 accounts at Vanguard, a Rollover IRA and Roth. Both are in my name only, and my wife is the beneficiary on both. I handle all of the finances for us.

My understanding it that it matters when you pass away, but if you have an Individual account with your spouse named as beneficiary it's all good. Is that right?
You also have the option of your wife opening a Roth or TIRA if your goal is retirement savings. Taxable is good for short term goals, emergency savings, and retirement if you run out of tax-advantaged space.

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Re: Joint or Individual for new taxable account at Vanguard?

Post by CAsage »

Note that your prior accounts were retirement accounts, which are always individual. If you are married and opening a new account, yes, make it joint. The only exception (and I'm generalizing) is if it was separate property like inheritance.
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Re: Joint or Individual for new taxable account at Vanguard?

Post by GaryA505 »

pkcrafter wrote: Thu Sep 07, 2017 8:18 am
GaryA505 wrote: Wed Sep 06, 2017 5:34 pm I'm opening a new taxable account at Vanguard and don't know which account type to select - Individual or Joint. Does it really make any difference? I've read the other threads on this forum and it's still not clear to me.

I already have 2 accounts at Vanguard, a Rollover IRA and Roth. Both are in my name only, and my wife is the beneficiary on both. I handle all of the finances for us.

My understanding it that it matters when you pass away, but if you have an Individual account with your spouse named as beneficiary it's all good. Is that right?
You also have the option of your wife opening a Roth or TIRA if your goal is retirement savings. Taxable is good for short term goals, emergency savings, and retirement if you run out of tax-advantaged space.

Paul
Oi! I hadn't thought of that. If all of our earned income is from my job, and we have none from her, can we open TIRA and a Roth for her?
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Re: Joint or Individual for new taxable account at Vanguard?

Post by GaryA505 »

CAsage wrote: Thu Sep 07, 2017 10:29 am Note that your prior accounts were retirement accounts, which are always individual. If you are married and opening a new account, yes, make it joint. The only exception (and I'm generalizing) is if it was separate property like inheritance.
Yes, I think I'm getting there. Since we are in a community property state, everything (joint or individual retirement or taxable investment accounts) is considered community property anyway unless you document it as separate property (we have nothing separate). Passing of either spouse results in a step-up to 100% FMV for the surviving spouse.
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Re: Joint or Individual for new taxable account at Vanguard?

Post by ruralavalon »

GaryA505 wrote: Wed Sep 06, 2017 5:34 pm I'm opening a new taxable account at Vanguard and don't know which account type to select - Individual or Joint. Does it really make any difference? I've read the other threads on this forum and it's still not clear to me.

I already have 2 accounts at Vanguard, a Rollover IRA and Roth. Both are in my name only, and my wife is the beneficiary on both. I handle all of the finances for us.

My understanding it that it matters when you pass away, but if you have an Individual account with your spouse named as beneficiary it's all good. Is that right?
Why not open an IRA for your wife, and create additional tax-advantaged investing?

If your tax filing status is "married filing jointly" you can fund her IRA using your income.
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Re: Joint or Individual for new taxable account at Vanguard?

Post by GaryA505 »

ruralavalon wrote: Thu Sep 07, 2017 11:03 am
GaryA505 wrote: Wed Sep 06, 2017 5:34 pm I'm opening a new taxable account at Vanguard and don't know which account type to select - Individual or Joint. Does it really make any difference? I've read the other threads on this forum and it's still not clear to me.

I already have 2 accounts at Vanguard, a Rollover IRA and Roth. Both are in my name only, and my wife is the beneficiary on both. I handle all of the finances for us.

My understanding it that it matters when you pass away, but if you have an Individual account with your spouse named as beneficiary it's all good. Is that right?
Why not open an IRA for your wife, and create additional tax-advantaged investing?

If your tax filing status is "married filing jointly" you can fund her IRA using your income.
That's what I was just thinking. I guess I had been thinking she had to have her own income to open an IRA, but maybe not?
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Re: Joint or Individual for new taxable account at Vanguard?

Post by GaryA505 »

Ah, I think I can do a separate IRA for her. I have a SEP-IRA at work, but the phase-out starts at $186000 AGI and we're well below that.
Now, can we also do a Roth for her?
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Re: Joint or Individual for new taxable account at Vanguard?

Post by HueyLD »

The OP quoted: "A 1985 revision of New Mexico statutes states “property acquired by a husband and wife by an instrument in writing, whether as tenants in common, as joint tenants or otherwise, will be presumed to be held as community property unless such property is separate property.”

It is the presumption that makes it rebuttable. It may be said that in NM all properties acquired during marriage with community funds are presumed to be community properties regardless of how they are titled. However, if the dollar amount involved is significant enough for you, you need to remove any ambiguity and make your intention as clear as possible.

And the second issue of basis step up (or down) upon the death of one spouse is entirely different from the first issue you raised. The basis of property is governed by income tax law. According to 26 U.S. Code § 1014 - Basis of property acquired from a decedent:
(a) In general
Except as otherwise provided in this section, the basis of property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent shall, if not sold, exchanged, or otherwise disposed of before the decedent’s death by such person, be—

(1) the fair market value of the property at the date of the decedent’s death,
....
(b) Property acquired from the decedent
For purposes of subsection (a), the following property shall be considered to have been acquired from or to have passed from the decedent:
....
(6) In the case of decedents dying after December 31, 1947, property which represents the surviving spouse’s one-half share of community property held by the decedent and the surviving spouse under the community property laws of any State, or possession of the United States or any foreign country, if at least one-half of the whole of the community interest in such property was includible in determining the value of the decedent’s gross estate under chapter 11 of subtitle B (section 2001 and following, relating to estate tax) or section 811 of the Internal Revenue Code of 1939;"
So, to get 100% of basis step up (or down) to the FMV upon death of one spouse, the assets have to be titled as community property. A regular joint account (with or without rights of survivorship) will only receive a FMV adjustment for only 1/2 of the joint assets.

In addition, if you own taxable account individually and your spouse predeceases you, you get no basis adjustment, period. If the same account is held as community property, your spouse's death will allow the full basis adjustment.

There are other reasons to hold everything separately, and it is up to you to decide which reasons are more important.

Best of luck to you and your family.
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Re: Joint or Individual for new taxable account at Vanguard?

Post by GaryA505 »

Huey, this leads me back to my original question.

How do I open an account at Vanguard as "Community Property", when the only choices are "Individual" and "Joint"? Does "Joint" imply JTWROS? I will pose these questions to Vanguard.
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Re: Joint or Individual for new taxable account at Vanguard?

Post by HueyLD »

I think you have to call Vanguard because their account opening form doesn't have a box for joint community property.

Fidelity's new account form has such a box to check.
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Re: Joint or Individual for new taxable account at Vanguard?

Post by GaryA505 »

On Vanguard's PDF form there is a way to specify Joint account registration, and it clearly states:
Joint accounts will be registered as “joint tenants with
right of survivorship” unless you indicate otherwise below.


However, with Vanguard's online form, when you select "Joint" account, there is no way to specify Joint account registration. I guess I'm going to have to call them on this one.
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Re: Joint or Individual for new taxable account at Vanguard?

Post by GaryA505 »

HueyLD wrote: Thu Sep 07, 2017 11:41 am I think you have to call Vanguard because their account opening form doesn't have a box for joint community property.

Fidelity's new account form has such a box to check.
Thanks. Maybe I should consider opening this account at Fidelity.
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Re: Joint or Individual for new taxable account at Vanguard?

Post by GaryA505 »

Somewhere, an IT person who did this online account application for Vanguard should be fired.

On the first screen, when you select account type, "Individual", "Joint", and "Trust" account are the only choices. There is no mention of account registration there at all, and no hints as to how community property can be specified as opposed to JTWROS. This leads to confusion and questions as seen on this thread and elsewhere.

However, no less than 4 SCREENS LATER, there is a selection for what they call "joint account type", which is actually the joint account registration. The choices there are:
-Joint tenants with right of survivorship
-Tenants in common

But, if you click on "show additional account types" below those two choices, you get these additional (hidden) choices:
-Community property
-Community property with right of survivorship

So ..................

All that would be needed to avoid a lot of customer service questions is a little message on the initial individual/joint/trust screen stating:
"A Joint Account is owned by two or more people. If you select Joint Account on this screen, on a later screen you will select the registration of the account. Note that the default registration for a Joint Account will be “joint tenants with right of survivorship” unless you select otherwise."

Sheesh!
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Re: Joint or Individual for new taxable account at Vanguard?

Post by Kevin M »

I believe you can draft a community property declaration that certifies that all property owned by both parties is community property regardless of the state of the title. This may be sufficient to clarify the intent of the joint ownership titling at Vanguard, but IANAL.

I do see on a Vanguard account registration form on which you can write in the specific type of ownership for a "joint" account, and "community property" is one of the examples they provide: Account Registration Form. I see that while I was writing this it has been clarified that you can select community property as the specific type of joint ownership using the online account registration as well.

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Re: Joint or Individual for new taxable account at Vanguard?

Post by HueyLD »

GaryA505 wrote: Thu Sep 07, 2017 12:49 pm Somewhere, an IT person who did this online account application for Vanguard should be fired.

On the first screen, when you select account type, "Individual", "Joint", and "Trust" account are the only choices. There is no mention of account registration there at all, and no hints as to how community property can be specified as opposed to JTWROS. This leads to confusion and questions as seen on this thread and elsewhere.

However, no less than 4 SCREENS LATER, there is a selection for what they call "joint account type", which is actually the joint account registration. The choices there are:
-Joint tenants with right of survivorship
-Tenants in common

But, if you click on "show additional account types" below those two choices, you get these additional (hidden) choices:
-Community property
-Community property with right of survivorship

So ..................

All that would be needed to avoid a lot of customer service questions is a little message on the initial individual/joint/trust screen stating:
"A Joint Account is owned by two or more people. If you select Joint Account on this screen, on a later screen you will select the registration of the account. Note that the default registration for a Joint Account will be “joint tenants with right of survivorship” unless you select otherwise."
Thanks for sharing your online account opening experience.

I opened mine on paper. Now I know that I can open my next one online with the ownership designation.
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Re: Joint or Individual for new taxable account at Vanguard?

Post by CAsage »

Check out the declaration of stating that all joint property is intended to be counted as community property - I've heard of that before, and it might simplify your life (many lives....) if you can do this once (possibly in a will?) and have it count. Unsure of where you would do this, but seems useful!
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Re: Joint or Individual for new taxable account at Vanguard?

Post by ruralavalon »

GaryA505 wrote: Thu Sep 07, 2017 11:16 am Ah, I think I can do a separate IRA for her. I have a SEP-IRA at work, but the phase-out starts at $186000 AGI and we're well below that.
Now, can we also do a Roth for her?
I.am not a tax expert, I don't even do my own taxes.

But it sounds like she can make deductible contributions to a traditional IRA. IRS, "2017 IRA Deduction Limits - Effect of Modified AGI on Deduction if You Are NOT Covered by a Retirement Plan at Work".

It sounds like she could contribute to a Roth IRA. IRS, "Amount of Roth IRA Contributions That You Can Make For 2017".

The contribution limit is $5.5k/yr for either type, or for both in combination. She can't double the contribution limit by having both kinds of IRA.
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Re: Joint or Individual for new taxable account at Vanguard?

Post by GaryA505 »

HueyLD wrote: Thu Sep 07, 2017 1:47 pm
GaryA505 wrote: Thu Sep 07, 2017 12:49 pm Somewhere, an IT person who did this online account application for Vanguard should be fired.

On the first screen, when you select account type, "Individual", "Joint", and "Trust" account are the only choices. There is no mention of account registration there at all, and no hints as to how community property can be specified as opposed to JTWROS. This leads to confusion and questions as seen on this thread and elsewhere.

However, no less than 4 SCREENS LATER, there is a selection for what they call "joint account type", which is actually the joint account registration. The choices there are:
-Joint tenants with right of survivorship
-Tenants in common

But, if you click on "show additional account types" below those two choices, you get these additional (hidden) choices:
-Community property
-Community property with right of survivorship

So ..................

All that would be needed to avoid a lot of customer service questions is a little message on the initial individual/joint/trust screen stating:
"A Joint Account is owned by two or more people. If you select Joint Account on this screen, on a later screen you will select the registration of the account. Note that the default registration for a Joint Account will be “joint tenants with right of survivorship” unless you select otherwise."
Thanks for sharing your online account opening experience.

I opened mine on paper. Now I know that I can open my next one online with the ownership designation.
Now this is funny (in a sad sort of way). After I figured out how to do it, I received a message from Vanguard support saying I couldn't do it online and would have to use the paper account application. I guess what I have heard about Vanguard customer support is true.
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