Vanguard won't fix IRA misclassification [solved]

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charlesmont
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Vanguard won't fix IRA misclassification [solved]

Post by charlesmont » Sat Dec 07, 2019 7:05 pm

Looking for anyone who has had a similar experience and any tips on getting it resolved.

I've spent nearly a year trying to have this fixed - a year of emails, letters, phone calls, conference calls and frustration. In 2018, I transferred funds from an inherited TIAA retirement variable annuity (Traditional and Real Estate were two holdings) to an IRA at Vanguard. Instead of placing the funds in an Inherited IRA they put them in a Rollover IRA. They now refuse to reclassify the IRA as an Inherited IRA even after dozens of hours of communication to do so, a physical letter from TIAA stating that the funds should be in an Inherited IRA and receipts of the RMDs I had to take from the funds while they were at TIAA. First, they wanted some formal blanket "letter of indemnity" from TIAA. Their latest response is that because I passed when they asked if I would like to lean more by speaking with an IRA specialist at Vanguard during the transfer, that somehow indicated to them that a Rollover IRA was appropriate. I didn't need to speak to the specialist because there was no need...it was a simple trustee to trustee transfer with the terms clearly defined. Now, they want me to pay for more billable hours with our CPA to do an excess removal which will create a taxable event and not even solve the problem anyway.
I've filed complaints with the SEC, FINRA and CFPB (which said this wasn't their jurisdiction and forwarded the complaint to the FTC). I haven't heard anything else back yet although it's only been a few days since.
I'd really appreciate any input you all might have. I really admire Vanguard, but this has seriously sullied that admiration.
Thanks very much,
LK
Last edited by charlesmont on Mon Dec 23, 2019 10:40 pm, edited 1 time in total.

Trader Joe
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Re: Vanguard won't fix IRA misclassification

Post by Trader Joe » Sat Dec 07, 2019 7:21 pm

charlesmont wrote:
Sat Dec 07, 2019 7:05 pm
Looking for anyone who has had a similar experience and any tips on getting it resolved.

I've spent nearly a year trying to have this fixed - a year of emails, letters, phone calls, conference calls and frustration. In 2018, I transferred funds from an inherited TIAA retirement variable annuity (Traditional and Real Estate were two holdings) to an IRA at Vanguard. Instead of placing the funds in an Inherited IRA they put them in a Rollover IRA. They now refuse to reclassify the IRA as an Inherited IRA even after dozens of hours of communication to do so, a physical letter from TIAA stating that the funds should be in an Inherited IRA and receipts of the RMDs I had to take from the funds while they were at TIAA. First, they wanted some formal blanket "letter of indemnity" from TIAA. Their latest response is that because I passed when they asked if I would like to lean more by speaking with an IRA specialist at Vanguard during the transfer, that somehow indicated to them that a Rollover IRA was appropriate. I didn't need to speak to the specialist because there was no need...it was a simple trustee to trustee transfer with the terms clearly defined. Now, they want me to pay for more billable hours with our CPA to do an excess removal which will create a taxable event and not even solve the problem anyway.
I've filed complaints with the SEC, FINRA and CFPB (which said this wasn't their jurisdiction and forwarded the complaint to the FTC). I haven't heard anything else back yet although it's only been a few days since.
I'd really appreciate any input you all might have. I really admire Vanguard, but this has seriously sullied that admiration.
Thanks very much,
LK
If I were in your shoes I would move my on and move my assets to Fidelity.

TIAX
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Re: Vanguard won't fix IRA misclassification

Post by TIAX » Sat Dec 07, 2019 7:53 pm

Find counsel to see if filing a FINRA arbitration may make sense.

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Re: Vanguard won't fix IRA misclassification

Post by Alan S. » Sat Dec 07, 2019 7:58 pm

charlesmont wrote:
Sat Dec 07, 2019 7:05 pm
Looking for anyone who has had a similar experience and any tips on getting it resolved.

I've spent nearly a year trying to have this fixed - a year of emails, letters, phone calls, conference calls and frustration. In 2018, I transferred funds from an inherited TIAA retirement variable annuity (Traditional and Real Estate were two holdings) to an IRA at Vanguard. Instead of placing the funds in an Inherited IRA they put them in a Rollover IRA. They now refuse to reclassify the IRA as an Inherited IRA even after dozens of hours of communication to do so, a physical letter from TIAA stating that the funds should be in an Inherited IRA and receipts of the RMDs I had to take from the funds while they were at TIAA. First, they wanted some formal blanket "letter of indemnity" from TIAA. Their latest response is that because I passed when they asked if I would like to lean more by speaking with an IRA specialist at Vanguard during the transfer, that somehow indicated to them that a Rollover IRA was appropriate. I didn't need to speak to the specialist because there was no need...it was a simple trustee to trustee transfer with the terms clearly defined. Now, they want me to pay for more billable hours with our CPA to do an excess removal which will create a taxable event and not even solve the problem anyway.
I've filed complaints with the SEC, FINRA and CFPB (which said this wasn't their jurisdiction and forwarded the complaint to the FTC). I haven't heard anything else back yet although it's only been a few days since.
I'd really appreciate any input you all might have. I really admire Vanguard, but this has seriously sullied that admiration.
Thanks very much,
LK
Perhaps this link will provide at least some hope of a positive resolution. The prevailing opinion in the industry is that this rather fatal error must result in a taxable distribution and an excess contribution to the owned IRA. However, with an experienced and cooperative custodian it is possible to simply have the account retitled as an inherited IRA as long as no distributions have been taken, particularly if the owned IRA is a new account with no prior balance commingled with the recent transfer.

http://retirementdictionary.com/faqs/de ... heritedira

NOTE: Denise Appleby is a recognized authority on this subject with many years of industry experience.

However, the details in how this error occurred matter, since many custodians are not motivated to cooperate unless THEY are totally at fault for the error. So can you clarify HOW this error was made. Did you do anything to contribute to it? Did you submit an application in writing or open the account on line? Did TIIA send a check to you for delivery to VG, or did you have VG "pull" the transfer from TIIA?

What is the balance of this account, since that's a factor in determining how much time and expense to expend in trying to secure cooperation from VG?

Topic Author
charlesmont
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Re: Vanguard won't fix IRA misclassification

Post by charlesmont » Sat Dec 07, 2019 10:03 pm

I contacted Vanguard online to initiate the transfer which they did. I let them handle everything directly with TIAA. There was never any discussion if the destination account should be an Inherited or Rollover IRA since I thought that would be a simple and automatic determination they would make based on the account information from TIAA. I do not and have never had any personal retirement accounts (or any other accounts) at TIAA except for this inherited account from my late father. Vanguard received the funds directly from TIAA. At transfer time, the amount was around $100K. Now, it has grown to $115K. No distributions have been taken since the transfer to Vanguard. Thanks for all of your input.

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LilyFleur
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Re: Vanguard won't fix IRA misclassification

Post by LilyFleur » Sat Dec 07, 2019 10:39 pm

It is odd to me that this could be done online and that there could have been such an egregious error.

When I opened my inherited IRA at Schwab I had to bring in a death certificate and statements from the two IRAs I had inherited. I sat down and filled out the application in my Schwab guy's office. It was all very clear (with his assistance as needed), and he explained to me that my new IRA would be called an "Inherited IRA" and he explained that I would need to take yearly RMDs. He gave me the account number for my inherited IRA, and a few days later, the account showed up in my Schwab online portal. The rollover funds came over after a few weeks.

I wonder if you went to Fidelity or Schwab, if they would be more willing to help you fix this.

I had previously asked Schwab if I could open my Inherited IRA online, and they said that wasn't possible. Perhaps they want it done in writing in order to avoid these types of problems.

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charlesmont
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Re: Vanguard won't fix IRA misclassification

Post by charlesmont » Sat Dec 07, 2019 11:08 pm

I started the process online. I had to send them some forms with notary signatures and speak with them on the phone a couple times but it was pretty straightforward. Vanguard doesn't have any physical offices anyway. I knew from the beginning it had to be an Inherited IRA, there wasn't any confusion on my part about that.
Thanks for your input!

Murgatroyd
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Re: Vanguard won't fix IRA misclassification

Post by Murgatroyd » Sun Dec 08, 2019 11:03 am

charlesmont wrote:
Sat Dec 07, 2019 10:03 pm
I contacted Vanguard online to initiate the transfer which they did. I let them handle everything directly with TIAA. There was never any discussion if the destination account should be an Inherited or Rollover IRA since I thought that would be a simple and automatic determination they would make based on the account information from TIAA. I do not and have never had any personal retirement accounts (or any other accounts) at TIAA except for this inherited account from my late father. Vanguard received the funds directly from TIAA. At transfer time, the amount was around $100K. Now, it has grown to $115K. No distributions have been taken since the transfer to Vanguard. Thanks for all of your input.
DW and I each inherited IRA’s from deceased parents. In both cases we had to change them to inherited IRA BDA (beneficiary distribution account) accounts at the originating institutions before they could transferred. In fact, both Bank One and Merrill Lynch automatically initiated paperwork to change the accounts to IRA BDA’s because IIRC, that is the only way the beneficiary can own the account. We then had to open inherited IRA BDA accounts (if you will, empty vessels) that we could transfer them to, in our case Fidelity. In each of these instances there was a lot of paperwork which included death certificates and making the “stretch IRA” versus payout decisions.

Based on my experience you were absent a number of steps that both companies failed to inform. We were told there are specific laws governing these situations. No idea where you go from here. Sorry for your trouble.

Edit: just reread your post, looks like Tiaa did you right.

bsteiner
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Re: Vanguard won't fix IRA misclassification

Post by bsteiner » Sun Dec 08, 2019 11:19 am

Alan S. wrote:
Sat Dec 07, 2019 7:58 pm
charlesmont wrote:
Sat Dec 07, 2019 7:05 pm
Looking for anyone who has had a similar experience and any tips on getting it resolved.

I've spent nearly a year trying to have this fixed - a year of emails, letters, phone calls, conference calls and frustration. In 2018, I transferred funds from an inherited TIAA retirement variable annuity (Traditional and Real Estate were two holdings) to an IRA at Vanguard. Instead of placing the funds in an Inherited IRA they put them in a Rollover IRA. They now refuse to reclassify the IRA as an Inherited IRA even after dozens of hours of communication to do so, a physical letter from TIAA stating that the funds should be in an Inherited IRA and receipts of the RMDs I had to take from the funds while they were at TIAA. First, they wanted some formal blanket "letter of indemnity" from TIAA. Their latest response is that because I passed when they asked if I would like to lean more by speaking with an IRA specialist at Vanguard during the transfer, that somehow indicated to them that a Rollover IRA was appropriate. I didn't need to speak to the specialist because there was no need...it was a simple trustee to trustee transfer with the terms clearly defined. Now, they want me to pay for more billable hours with our CPA to do an excess removal which will create a taxable event and not even solve the problem anyway.
I've filed complaints with the SEC, FINRA and CFPB (which said this wasn't their jurisdiction and forwarded the complaint to the FTC). I haven't heard anything else back yet although it's only been a few days since.
I'd really appreciate any input you all might have. I really admire Vanguard, but this has seriously sullied that admiration.
Thanks very much,
LK
Perhaps this link will provide at least some hope of a positive resolution. The prevailing opinion in the industry is that this rather fatal error must result in a taxable distribution and an excess contribution to the owned IRA. However, with an experienced and cooperative custodian it is possible to simply have the account retitled as an inherited IRA as long as no distributions have been taken, particularly if the owned IRA is a new account with no prior balance commingled with the recent transfer.

http://retirementdictionary.com/faqs/de ... heritedira

NOTE: Denise Appleby is a recognized authority on this subject with many years of industry experience.

However, the details in how this error occurred matter, since many custodians are not motivated to cooperate unless THEY are totally at fault for the error. So can you clarify HOW this error was made. Did you do anything to contribute to it? Did you submit an application in writing or open the account on line? Did TIIA send a check to you for delivery to VG, or did you have VG "pull" the transfer from TIIA?

What is the balance of this account, since that's a factor in determining how much time and expense to expend in trying to secure cooperation from VG?
I know Denise well. She's the leading authority on IRA operations. If anyone can fix it, she can.

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Re: Vanguard won't fix IRA misclassification

Post by Alan S. » Sun Dec 08, 2019 12:35 pm

charlesmont wrote:
Sat Dec 07, 2019 11:08 pm
I started the process online. I had to send them some forms with notary signatures and speak with them on the phone a couple times but it was pretty straightforward. Vanguard doesn't have any physical offices anyway. I knew from the beginning it had to be an Inherited IRA, there wasn't any confusion on my part about that.
Thanks for your input!
Do you have any documentation from VG that indicates they opened an inherited IRA showing you as beneficiary of your father? Did you send VG a death certificate?

What info did you provide TIAA? Normally, a transfer cannot be made between accounts titled differently. Therefore, the normal procedure is to submit the death certificate to TIIA along with your contact info and SSN to have their IRA retitled in beneficiary format. Then the transfer can be done as initiated through VG. However, if the TIAA account was still titled to your father as owner, the transfer would not go through to an inherited IRA. So I am trying to figure out exactly what happened here behind the scenes and why VG is stalling.

Since the transfer was evidently done in 2018 and you have not taken a distribution for your beneficiary RMD for 2019, do NOT request the RMD distribution since that will eliminate any chance of a VG retitled account. If they do retitle it, you can make up the late RMD then and the IRS will likely waive any penalty if you file a 5329 indicating the reason it was late. Also, since VG had an IRA balance at the end of 2018, you should have received a 5498 in May reporting the year end value. I assume that form shows you as the owner, not beneficiary. This will totally mess up any back door Roth conversion if you are doing those.

Even if you were partially at fault for the error, VG can still correct the error if you provided sufficient proof. Are they giving you access to a specialist now?

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charlesmont
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Re: Vanguard won't fix IRA misclassification

Post by charlesmont » Sun Dec 08, 2019 12:58 pm

I took the total 2018 RMD from TIAA before transferring the funds. TIAA said this was a requirement for the transfer. I did provide both VG and TIAA with death certificates and all the forms they asked for, but I let them tell me what I needed to provide/complete, as that seemed the reasonable and prudent way to proceed. The TIAA account was not overtly called an IRA...it was an inherited Variable Annuity Retirement Contract, but I thought they would have plenty if experience transferring this to an Inherited IRA and making sure it was done correctly. This all seems wildly complicated and bureaucratic for a simple transfer where the only money at stake is mine, not Vanguard's or TIAA's. And I have much more understanding of the industry than the average person... can't imagine what it would be like for them dealing with this, right?

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Re: Vanguard won't fix IRA misclassification

Post by Alan S. » Sun Dec 08, 2019 1:55 pm

charlesmont wrote:
Sun Dec 08, 2019 12:58 pm
I took the total 2018 RMD from TIAA before transferring the funds. TIAA said this was a requirement for the transfer. I did provide both VG and TIAA with death certificates and all the forms they asked for, but I let them tell me what I needed to provide/complete, as that seemed the reasonable and prudent way to proceed. The TIAA account was not overtly called an IRA...it was an inherited Variable Annuity Retirement Contract, but I thought they would have plenty if experience transferring this to an Inherited IRA and making sure it was done correctly. This all seems wildly complicated and bureaucratic for a simple transfer where the only money at stake is mine, not Vanguard's or TIAA's. And I have much more understanding of the industry than the average person... can't imagine what it would be like for them dealing with this, right?
Taking a distribution from the TIAA account is not a problem, but taking one from the VG incorrectly titled IRA would probably end any chance of getting them to re title it. As for the 2018 RMD from TIAA, that would have been the uncompleted RMD of your father if he passed in 2018. If he passed before 2018, it would have been a beneficiary RMD for you.

Since you received a 2018 distribution, look at the 2018 1099R you received from TIIA. If the Box 7 code was 4 (death distribution) then the account had to be titled with you as beneficiary. This is true even if that RMD was your father's year of death RMD, but paid to you. Also please advise if the IRA/SEP/SIMPLE box is checked. Knowing how the TIAA account was titled eliminates some possible causes for this error in the first place and if it was titled correctly, there is no way that the transfer into an non inherited IRA should have been possible.

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charlesmont
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Re: Vanguard won't fix IRA misclassification

Post by charlesmont » Sun Dec 08, 2019 4:47 pm

Ok. Thanks so much for that. I'll check the file when I get home. Dad passed in 2014.

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Re: Vanguard won't fix IRA misclassification

Post by sambb » Sun Dec 08, 2019 6:20 pm

Vanguard has serious customer service issues that are likely reflective of leadership issues. Low cost comes with some problems. I wish you the best.

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Re: Vanguard won't fix IRA misclassification

Post by RickyAZ » Sun Dec 08, 2019 6:35 pm

The problem is at TIAA. You're asking VGI to fix something that is not their fault. The Annuity is not an IRA, you want them to transfer and change the asset in type and title at the same time. It should have been done in 2 steps and it should have been retitled before being transferred. SInce you've taken distributions the error is probably fatal

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JamesSFO
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Re: Vanguard won't fix IRA misclassification

Post by JamesSFO » Mon Dec 09, 2019 5:34 am

sambb wrote:
Sun Dec 08, 2019 6:20 pm
Vanguard has serious customer service issues that are likely reflective of leadership issues. Low cost comes with some problems. I wish you the best.
This is completely uncalled for in this thread. There is no evidence yet that vanguard has made any errors. The OP is getting specific help on what unfortunately is a complex issue from Alan s and others.

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JamesSFO
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Re: Vanguard won't fix IRA misclassification

Post by JamesSFO » Mon Dec 09, 2019 5:36 am

RickyAZ wrote:
Sun Dec 08, 2019 6:35 pm
The problem is at TIAA. You're asking VGI to fix something that is not their fault. The Annuity is not an IRA, you want them to transfer and change the asset in type and title at the same time. It should have been done in 2 steps and it should have been retitled before being transferred. SInce you've taken distributions the error is probably fatal
Let’s not jump to blaming the OP indirectly by stating this should have been done a certain way. It seems like OP made reasonable assumptions in a complex area and may have been burned by them but it also might be fixable.

OP is getting useful advice from Alan s and should follow that up and see if they can fix the issue.

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charlesmont
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Re: Vanguard won't fix IRA misclassification

Post by charlesmont » Mon Dec 09, 2019 10:51 am

Alan, the Distribution Code is 4. The IRA/SEP/Simple box is not checked.

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Re: Vanguard won't fix IRA misclassification

Post by not4me » Mon Dec 09, 2019 11:29 am

charlesmont wrote:
Sun Dec 08, 2019 12:58 pm
The TIAA account was not overtly called an IRA...it was an inherited Variable Annuity Retirement Contract, but I thought they would have plenty if experience transferring this to an Inherited IRA and making sure it was done correctly.
This was a red flag to me. Did they use the terms qualified or non-qualified overtly? This is sounding as if you inherited a Variable Annuity outside an IRA.

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charlesmont
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Re: Vanguard won't fix IRA misclassification

Post by charlesmont » Mon Dec 09, 2019 11:38 am

This is a very common retirement vehicle offered by TIAA to thousands of non-profit, educators and public service employees around the USA. It is not held in an IRA but when transferred out the equivalent destination is an inherited IRA (in the case of inheritance). Similar how a 401(k) is transferred out to an IRA.

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Re: Vanguard won't fix IRA misclassification

Post by dodecahedron » Mon Dec 09, 2019 11:46 am

not4me wrote:
Mon Dec 09, 2019 11:29 am
charlesmont wrote:
Sun Dec 08, 2019 12:58 pm
The TIAA account was not overtly called an IRA...it was an inherited Variable Annuity Retirement Contract, but I thought they would have plenty if experience transferring this to an Inherited IRA and making sure it was done correctly.
This was a red flag to me. Did they use the terms qualified or non-qualified overtly? This is sounding as if you inherited a Variable Annuity outside an IRA.
Good point. TIAA has lots of products (often with confusing nonstandard names.) They have a product I have heard referred to as an ATRA (¨After Tax Retirement Annuity¨) which is a variable annuity product that would not be eligible to transfer into any type of IRA (inherited or otherwise.) They also have variable annuities inside 403-b and 401-k employer retirement accounts that could be transferred into an IRA account.

I would get more clarification from TIAA on exactly what type of account was involved. What is the history by which the OP´s father funded the account. If it was a TIAA ATRA,Vanguard should not have put it into any type of IRA, not even an inherited one.

An important lesson from this episode is that folks need to be extremely careful when transferring funds out of TIAA. They have a lot of different products and their terminology is nonstandard. My advice to my own kids is that if there are any funds remaining at TIAA at my death, first have TIAA transfer the funds into inherited IRAs within TIAA´s custody before attempting to transfer them anywhere else. IRA to IRA transfers are much easier for another custodian to handle.

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Re: Vanguard won't fix IRA misclassification

Post by dodecahedron » Mon Dec 09, 2019 11:53 am

charlesmont wrote:
Mon Dec 09, 2019 11:38 am
This is a very common retirement vehicle offered by TIAA to thousands of non-profit, educators and public service employees around the USA. It is not held in an IRA but when transferred out the equivalent destination is an inherited IRA (in the case of inheritance). Similar how a 401(k) is transferred out to an IRA.
Do you have records showing how your father originally funded this account? TIAA offers ATRA accounts to nonprofit, educators and public service employees and ATRAs can´t be transferred into an IRA.

They also offer a variety of employer-based accounts (401k, 401a, 403b, 457) to such employees which *can* be transferred into an IRA.

The former type of account would typically have been funded by checks your father would have written directly to TIAA from his bank checking account.

The latter type of account would typically have been funded by payroll deductions from your father´s paycheck.

Edited to add: I have a lot of experience with a lot of financial institutions, and my history with TIAA goes back many decades (both my own contributions, my late husband´s contributions, my dad´s contributions, my mom´s annuity benefits) and yet I found TIAA´s use of convoluted nonstandard terminology about my options by far the most bewildering to deal with after my husband´s death. As I noted above, your experience is a cautionary tale that I will definitely be taking into account in providing instructions for my heirs.

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Re: Vanguard won't fix IRA misclassification

Post by Alan S. » Mon Dec 09, 2019 12:32 pm

dodecahedron wrote:
Mon Dec 09, 2019 11:46 am
not4me wrote:
Mon Dec 09, 2019 11:29 am
charlesmont wrote:
Sun Dec 08, 2019 12:58 pm
The TIAA account was not overtly called an IRA...it was an inherited Variable Annuity Retirement Contract, but I thought they would have plenty if experience transferring this to an Inherited IRA and making sure it was done correctly.
This was a red flag to me. Did they use the terms qualified or non-qualified overtly? This is sounding as if you inherited a Variable Annuity outside an IRA.
Good point. TIAA has lots of products (often with confusing nonstandard names.) They have a product I have heard referred to as an ATRA (¨After Tax Retirement Annuity¨) which is a variable annuity product that would not be eligible to transfer into any type of IRA (inherited or otherwise.) They also have variable annuities inside 403-b and 401-k employer retirement accounts that could be transferred into an IRA account.

I would get more clarification from TIAA on exactly what type of account was involved. What is the history by which the OP´s father funded the account. If it was a TIAA ATRA,Vanguard should not have put it into any type of IRA, not even an inherited one.

An important lesson from this episode is that folks need to be extremely careful when transferring funds out of TIAA. They have a lot of different products and their terminology is nonstandard. My advice to my own kids is that if there are any funds remaining at TIAA at my death, first have TIAA transfer the funds into inherited IRAs within TIAA´s custody before attempting to transfer them anywhere else. IRA to IRA transfers are much easier for another custodian to handle.
Am glad you posted because I have no experience with TIAA products. If TIAA issued a 1099R reporting the direct rollover coded G and 4, this would be a clear indication that they considered it as a qualified annuity (perhaps funded from a 403b) and therefore eligible for direct rollover to an inherited IRA. That said, given that it would be best not to just assume his annuity was qualified, it is better to be absolutely sure if possible. The 1099R reports according to how the TIAA tax department interpreted distribution coding, but mistakes can be made.

Charles - please see if you can address some of the questions she asked. Also see if you can locate this other 1099R reporting the direct rollover and coded G and 4.

Once we clear this hurdle, can you shed more light on the transfer process itself? Did TIAA mail you a check for delivery to VG, did you notice the PAYEE wording on that check, or did you receive a notice showing this info if the check was sent directly to VG? Also, note that the Denise Appleby link I posted earlier applies whether the TIAA account was an IRA or a qualified annuity, but not if it was a NQ annuity.

What additional comments were contained in the TIAA letter you already secured relative to their account? Did VG have any further questions regarding either the eligibility of the transfer for rollover or about how the VG account happened to be titled without your father's name?

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charlesmont
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Re: Vanguard won't fix IRA misclassification

Post by charlesmont » Mon Dec 09, 2019 3:02 pm

It is my impression that Vanguard will agree at this point that it should be an Inherited IRA...they just refuse to change/fix/correct/admit any fault or really do anything about it except say you're on your own and talk to your tax advisor.
The TIAA account was a qualified retirement account funded by direct deposits from the University my father worked for. It was not an after tax account (i.e. no a Roth-like equivalent).
The funds transfer from my inherited TIAA account to Vanguard was direct trustee to trustee.
Update: Received an email from the SEC today saying they have sent Vanguard compliance a formal request to investigate the issue and report back to both me and the SEC officer. Hope that yields something rather than the months-long stonewalling still going on.

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Re: Vanguard won't fix IRA misclassification

Post by Alan S. » Mon Dec 09, 2019 3:13 pm

charlesmont wrote:
Mon Dec 09, 2019 3:02 pm
It is my impression that Vanguard will agree at this point that it should be an Inherited IRA...they just refuse to change/fix/correct/admit any fault or really do anything about it except say you're on your own and talk to your tax advisor.
The TIAA account was a qualified retirement account funded by direct deposits from the University my father worked for. It was not an after tax account (i.e. no a Roth-like equivalent).
The funds transfer from my inherited TIAA account to Vanguard was direct trustee to trustee.
Update: Received an email from the SEC today saying they have sent Vanguard compliance a formal request to investigate the issue and report back to both me and the SEC officer. Hope that yields something rather than the months-long stonewalling still going on.
Pleasantly surprised you received communication from the SEC. VG would give the SEC more priority than you have gotten.

If VG agrees that this SHOULD HAVE been an inherited IRA, they should not be compounding the issues by letting it survive another 12/31 date since that means their 5498 reporting will be incorrect and your excise taxes add another year @ 6%. Did you forward them the Denise Appleby article?

The inferior alternative of a taxable distribution and excess contribution removal that you cited is correct. Did that come from VG or somewhere else? Did they officially refuse to make any changes or are they just stonewalling?

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Re: Vanguard won't fix IRA misclassification

Post by megabad » Mon Dec 09, 2019 3:47 pm

Holy crap what a mess. I guess this is why the Vanguard website does not allow you to do this on the website forms and tells you to call. Good thing I record my phone calls with VG... If they don't get this cleaned up this year, I suppose you would owe the 50% penalty on your RMD? Is Vanguard going to cover that?

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LilyFleur
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Re: Vanguard won't fix IRA misclassification

Post by LilyFleur » Mon Dec 09, 2019 4:03 pm

Excellent idea to get the SEC involved.

Keep us posted!

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Re: Vanguard won't fix IRA misclassification

Post by Alan S. » Mon Dec 09, 2019 4:08 pm

megabad wrote:
Mon Dec 09, 2019 3:47 pm
Holy crap what a mess. I guess this is why the Vanguard website does not allow you to do this on the website forms and tells you to call. Good thing I record my phone calls with VG... If they don't get this cleaned up this year, I suppose you would owe the 50% penalty on your RMD? Is Vanguard going to cover that?
The late RMD penalty can easily be waived by filing a 5329, and there certainly is a sound "reasonable cause" here. The IRS accepts almost all waiver requests. That said, to file the 5329 you must make up all late RMDs and they would be taxed in a single year.

The 6% excise taxes are a much larger concern. They are 6% every year and there is no statute of limitations. The IRS will also bill late interest when these are paid after the due date for the excise tax year.

And the largest consequence of all is the forfeited tax deferral due to a lump sum distribution from the inherited account in the year of the botched direct rollover, so that would trigger a 1040X for 2018 (I believe that was the year of the direct rollover) since it did not meet the definition of an eligible rollover distribution since it went into an owned IRA.

Therefore, the cumulative negative effects of this are severe enough to warrant an all out effort to force VG to retitle the IRA to an inherited IRA and retroactively correct any tax reporting errors for Form 5498, etc

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JamesSFO
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Re: Vanguard won't fix IRA misclassification

Post by JamesSFO » Wed Dec 18, 2019 10:49 am

Just wondering if the OP had any luck/progress here.

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charlesmont
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Re: Vanguard won't fix IRA misclassification

Post by charlesmont » Mon Dec 23, 2019 5:00 pm

So...after months of frustration:
1. Mid morning. SEC Compliance contacts Vanguard.
2. Early afternoon. Vanguard "Executive Services" calls me to reverify a few personal information points. 10 min on phone.
3. Mid afternoon. Vanguard (same person for once) calls back. Says account retitling is authorized and complete.
The term they kept using is "replan" instead of retitle.
4. Late afternoon. I log on, see account is now "Inherited IRA" and am able to use their system to take exact RMD for the year. Distribution transaction notification hits phone 30 seconds later. DONE.

The Vanguard person I dealt with today mentioned subtly that "sometimes you have to do what's necessary to get these things done.". Interpretation: this was never really difficult for them, they just needed an SEC push to do the right thing. Hope this case can help others get resolution faster. Thanks everyone for your valuable input!

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charlesmont
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Re: Vanguard won't fix IRA misclassification

Post by charlesmont » Mon Dec 23, 2019 5:01 pm

JamesSFO wrote:
Wed Dec 18, 2019 10:49 am
Just wondering if the OP had any luck/progress here.
Yes, James, please see above.

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charlesmont
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Re: Vanguard won't fix IRA misclassification

Post by charlesmont » Mon Dec 23, 2019 5:02 pm

Alan S. wrote:
Mon Dec 09, 2019 4:08 pm
megabad wrote:
Mon Dec 09, 2019 3:47 pm
Hi Alan, update for you, please see above.

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Re: Vanguard won't fix IRA misclassification

Post by kaneohe » Mon Dec 23, 2019 5:22 pm

Congrats! Nice job of hanging in there and getting the right dogs involved!

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celia
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Re: Vanguard won't fix IRA misclassification

Post by celia » Mon Dec 23, 2019 7:42 pm

Once we saw how fast it could be fixed, that reminded me that you could have also written Vanguard’s CEO for assistance. I’ve had to do that twice for problems the staff couldn’t / wouldn’t fix. The CEO’s staff also gets things fixed quickly.

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Re: Vanguard won't fix IRA misclassification

Post by whodidntante » Mon Dec 23, 2019 7:51 pm

charlesmont wrote:
Mon Dec 23, 2019 5:00 pm
So...after months of frustration:
1. Mid morning. SEC Compliance contacts Vanguard.
2. Early afternoon. Vanguard "Executive Services" calls me to reverify a few personal information points. 10 min on phone.
3. Mid afternoon. Vanguard (same person for once) calls back. Says account retitling is authorized and complete.
The term they kept using is "replan" instead of retitle.
4. Late afternoon. I log on, see account is now "Inherited IRA" and am able to use their system to take exact RMD for the year. Distribution transaction notification hits phone 30 seconds later. DONE.

The Vanguard person I dealt with today mentioned subtly that "sometimes you have to do what's necessary to get these things done.". Interpretation: this was never really difficult for them, they just needed an SEC push to do the right thing. Hope this case can help others get resolution faster. Thanks everyone for your valuable input!
That experience would be the end of my relationship with Vanguard (or any broker who did that to me). That's just me though. I'm glad the regulators are able to convince Vanguard to do things since they were deaf to your pleas.

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Re: Vanguard won't fix IRA misclassification

Post by livesoft » Mon Dec 23, 2019 7:53 pm

Maybe edit the title by editing the first post title to reflect what has happened?

Perhaps "Vanguard won't [prompted by SEC to] fix IRA misclassification"
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charlesmont
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Re: Vanguard won't fix IRA misclassification

Post by charlesmont » Mon Dec 23, 2019 8:43 pm

livesoft wrote:
Mon Dec 23, 2019 7:53 pm
Maybe edit the title by editing the first post title to reflect what has happened?

Perhaps "Vanguard won't [prompted by SEC to] fix IRA misclassification"
I've been dealing with this for an entire year and spent dozens of hours (100+) on it when it could/should have been fixed in a couple of hours (probably minutes). If other people search for this situation, I want them to find my experience. Changing the title to your suggestion, while perhaps more nuanced, lessens the chance they will. Respectfully.

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celia
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Re: Vanguard won't fix IRA misclassification

Post by celia » Mon Dec 23, 2019 9:21 pm

charlesmont wrote:
Mon Dec 23, 2019 8:43 pm
....If other people search for this situation, I want them to find my experience. Changing the title to your suggestion, while perhaps more nuanced, lessens the chance they will. Respectfully.
To me, this last post looks like you want revenge on Vanguard. Originally, you said you were looking for ideas to fix the problem. That’s who you were attracting with the title and the opening sentence. Now that the problem’s been solved, without changing the thread title, you will be wasting the time of more people who are willing to help if they can.

If someone in the future has a similar/same problem, I don’t think they will come here since it looks like you couldn’t get the problem solved. If they find the thread, it will be because of search words used within the thread which will still be here, even if you change the title.

So please reconsider the time of 1,000s of Bogleheads.

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Re: Vanguard won't fix IRA misclassification

Post by livesoft » Mon Dec 23, 2019 9:30 pm

How about
Vanguard won't fix IRA misclassification [but forced to by SEC]

I'll bet that many readers are as surprised as I am that the SEC stepped in here and helped.
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typical.investor
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Re: Vanguard won't fix IRA misclassification

Post by typical.investor » Mon Dec 23, 2019 9:46 pm

charlesmont wrote:
Mon Dec 23, 2019 8:43 pm
livesoft wrote:
Mon Dec 23, 2019 7:53 pm
Maybe edit the title by editing the first post title to reflect what has happened?

Perhaps "Vanguard won't [prompted by SEC to] fix IRA misclassification"
I've been dealing with this for an entire year and spent dozens of hours (100+) on it when it could/should have been fixed in a couple of hours (probably minutes). If other people search for this situation, I want them to find my experience. Changing the title to your suggestion, while perhaps more nuanced, lessens the chance they will. Respectfully.
Nice job getting it fixed.

I don’t see threads being retitled in other forums I use, and not that much here. For instance, this thread is basically”can’t logon to Vanguard” but has a solution viewtopic.php?f=1&t=191760

If the board practice is to relabel, there should be a sticky by the mods stating the convention.

A simple [solved] might do the trick.

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charlesmont
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Re: Vanguard won't fix IRA misclassification [solved]

Post by charlesmont » Mon Dec 23, 2019 10:51 pm

Did the [solved] suggestion. And, YES, I'm letting off a little steam like anyone who spent 100+ hours and dozens of mind-numbing, redundant and fruitless emails, calls and keyboard-pounding would. Think that's justified, given the circumstance, right?. The quick resolution was efficient and relieving but made all of that time spent no less aggravating. But Happy Holidays nonetheless! 🙃

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JamesSFO
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Re: Vanguard won't fix IRA misclassification

Post by JamesSFO » Tue Dec 24, 2019 8:32 am

charlesmont wrote:
Mon Dec 23, 2019 5:01 pm
JamesSFO wrote:
Wed Dec 18, 2019 10:49 am
Just wondering if the OP had any luck/progress here.
Yes, James, please see above.
Sorry it took so much effort but glad you had a positive outcome

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Re: Vanguard won't fix IRA misclassification

Post by bondsr4me » Tue Dec 24, 2019 9:19 am

livesoft wrote:
Mon Dec 23, 2019 9:30 pm
How about
Vanguard won't fix IRA misclassification [but forced to by SEC]

I'll bet that many readers are as surprised as I am that the SEC stepped in here and helped.
I'm certainly surprised that the SEC would step in to help solve this issue.
But, I am very glad to hear they did.
And I hope they did some form of punishment/sanction/slap on the wrist; just something to force Vanguard to "wake up".
All in all, glad things are resolved.
Merry Christmas!

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Wiggums
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Re: Vanguard won't fix IRA misclassification [solved]

Post by Wiggums » Tue Dec 24, 2019 9:25 am

glad you had a positive outcome

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