Can you pay a Vanguard IRA account fee with Vanguard taxable account funds?

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Topic Author
water2357
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Can you pay a Vanguard IRA account fee with Vanguard taxable account funds?

Post by water2357 »

Years ago, I recall being able to pay IRA trustee/custodial/management fees using taxable funds, either from your taxable account or by sending a check to Vanguard in the amount of the fee, which at the time was maybe $10.

1) Does anyone know what Vanguard's procedure is now, so that you can pay the new $25 IRA brokerage account fee with taxable money instead of having Vanguard take that fee from your Roth IRA (or Traditional IRA)?

2) If Vanguard does go ahead and take the $25 from your IRA account, can you reimburse it?

3) And how does Vanguard report these fees to the IRS that are A) taken out of the IRA and/or B) paid out of taxable for the IRA or later reimbursed to the IRA?

My original (years ago) understanding was that A) fees taken out of the IRA are not distributions and should not be reported and B) IRA fees paid to Vanguard out of taxable money are not contributions and should not be reported. But does anyone know what/how Vanguard currently reports all of this "nickel and dime" fee stuff to the IRS and how it may or may not impact one's taxes?

And please do not tell me to elect e-delivery to avoid fees, that is not my question, my questions are all based on assuming that Vanguard actually charges a fee to the IRA accounts. Since Vanguard keeps changing the fee structure, including exceptions, there may ultimately be no way to avoid these fees

Thanks.
gotoparks
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Re: Can you pay a Vanguard IRA account fee with Vanguard taxable account funds?

Post by gotoparks »

Good question to ask Vanguard.

My mom has a mutual fund account with one fund and was charged a fee of 20 or 25. Vanguard sold the amount in her fund and for taxes, she had a loss. I don't have her tax info in front of me, but she got the applicable tax forms for selling her fund. I do her taxes, and by using tax software it wasn't a big deal.
Makefile
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Re: Can you pay a Vanguard IRA account fee with Vanguard taxable account funds?

Post by Makefile »

gotoparks wrote: Sun Jun 04, 2023 4:18 pm My mom has a mutual fund account with one fund and was charged a fee of 20 or 25. Vanguard sold the amount in her fund and for taxes, she had a loss. I don't have her tax info in front of me, but she got the applicable tax forms for selling her fund. I do her taxes, and by using tax software it wasn't a big deal.
That's right, but that also sounds like a taxable account. One thing to mention again with taxable accounts is that if a mutual fund holding gets docked for a fee and you have the average cost basis method (or have defaulted to it because you haven't picked one) you are then locked-in to average cost for all shares owned up to that date on that fund. So you should never fail to elect specific identification when you start a holding in a new mutual fund.
water2357 wrote: Sat Jun 03, 2023 9:28 pm My original (years ago) understanding was that A) fees taken out of the IRA are not distributions and should not be reported and B) IRA fees paid to Vanguard out of taxable money are not contributions and should not be reported. But does anyone know what/how Vanguard currently reports all of this "nickel and dime" fee stuff to the IRS and how it may or may not impact one's taxes?
I don't see why (A) would not always be true; it would be just like transfer-out fees to move an IRA (though Vanguard doesn't charge those), or trading commissions incurred inside the IRA.
I looked through the brokerage account agreement, and the IRA custodial agreement for anything about prepayment of annual fees. I didn't see anything and I doubt it would be offered today.
gotoparks
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Re: Can you pay a Vanguard IRA account fee with Vanguard taxable account funds?

Post by gotoparks »

Makefile wrote: Sun Jun 04, 2023 4:33 pm
gotoparks wrote: Sun Jun 04, 2023 4:18 pm My mom has a mutual fund account with one fund and was charged a fee of 20 or 25. Vanguard sold the amount in her fund and for taxes, she had a loss. I don't have her tax info in front of me, but she got the applicable tax forms for selling her fund. I do her taxes, and by using tax software it wasn't a big deal.
That's right, but that also sounds like a taxable account. One thing to mention again with taxable accounts is that if a mutual fund holding gets docked for a fee and you have the average cost basis method (or have defaulted to it because you haven't picked one) you are then locked-in to average cost for all shares owned up to that date on that fund. So you should never fail to elect specific identification when you start a holding in a new mutual fund.
water2357 wrote: Sat Jun 03, 2023 9:28 pm My original (years ago) understanding was that A) fees taken out of the IRA are not distributions and should not be reported and B) IRA fees paid to Vanguard out of taxable money are not contributions and should not be reported. But does anyone know what/how Vanguard currently reports all of this "nickel and dime" fee stuff to the IRS and how it may or may not impact one's taxes?
I don't see why (A) would not always be true; it would be just like transfer-out fees to move an IRA (though Vanguard doesn't charge those), or trading commissions incurred inside the IRA.
I looked through the brokerage account agreement, and the IRA custodial agreement for anything about prepayment of annual fees. I didn't see anything and I doubt it would be offered today.

Thanks for the tip. I looked and I have her on SpecID already. She doesn't sell anything though.
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dratkinson
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Re: Can you pay a Vanguard IRA account fee with Vanguard taxable account funds?

Post by dratkinson »

gotoparks wrote: Sun Jun 04, 2023 4:18 pm Good question to ask Vanguard.

My mom has a mutual fund account with one fund and was charged a fee of 20 or 25. Vanguard sold the amount in her fund and for taxes, she had a loss. I don't have her tax info in front of me, but she got the applicable tax forms for selling her fund. I do her taxes, and by using tax software it wasn't a big deal.
Sidebar. This is probably a simple problem if using Average cost basis.

It does become a small problem for uncovered shares of funds that use "specID" cost basis. Vanguard tracks all uncovered shares as one lot (Avg cost basis), and all converted Inv-->Adm shares as one lot (Avg cost basis). The problem arises when Vanguard sells lots by FIFO---refuses to accept fee any other way: LIFO (meaning they must track changed lot), mmkt (no tax reporting required),.... Since we must track cost basis for each original specID lot, so it requires a little work to compute/track remaining cost basis on unsold portion of FIFO (Inv-->Adm) lot.

I got to submit f8989, with code B (incorrect basis), with difference small enough (bond funds) that tax s/w may round it to $zero. Good times.

That annoyance will only disappear when I can TLH all uncovered shares---not wasting carryover loss to fix it. Or when heirs get stepped up cost basis on all lots.



Ditto. Ask Vanguard. Tell us what you learn. Be aware that what CSR tells you is not necessarily what Vanguard will do---been there, done that.
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Topic Author
water2357
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Re: Can you pay a Vanguard IRA account fee with Vanguard taxable account funds?

Post by water2357 »

water2357 wrote: ↑Sat Jun 03, 2023 10:28 pm
My original (years ago) understanding was that A) fees taken out of the IRA are not distributions and should not be reported and B) IRA fees paid to Vanguard out of taxable money are not contributions and should not be reported. But does anyone know what/how Vanguard currently reports all of this "nickel and dime" fee stuff to the IRS and how it may or may not impact one's taxes?

by Makefile » Sun Jun 04, 2023 5:33 pm
I don't see why (A) would not always be true; it would be just like transfer-out fees to move an IRA (though Vanguard doesn't charge those), or trading commissions incurred inside the IRA.
I looked through the brokerage account agreement, and the IRA custodial agreement for anything about prepayment of annual fees. I didn't see anything and I doubt it would be offered today.
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So, is it definitely true that when Vanguard takes a fee out of an IRA account that it is not reported on any tax form to the IRS?

As for paying, in particular, the Roth IRA fee out of taxable funds, the IRS allows it, but I haven't gotten an answer from Vanguard on this as yet, still trying. So, if anyone has an answer, please post.

Here is an article (written after the tax changes in 2018) that explains fairly well when fees can/should be paid with either IRA funds or taxable funds.
https://www.kitces.com/blog/investment- ... rtnership/
In particular, for a Roth
Nevertheless, to the extent possible, it was still better to pay Roth IRA fees with outside taxable dollars. By doing so (instead of having the Roth IRA fees pulled from the Roth IRA account), taxpayers were allowing an amount equal to their fee to remain in the Roth IRA, growing tax- and penalty-free, while paying that amount with taxable funds, for which every dollar of future interest, dividends, and capital gains would have otherwise been taxable.
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water2357
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Re: Can you pay a Vanguard IRA account fee with Vanguard taxable account funds?

Post by water2357 »

Has anyone ever received a 1099 due to Vanguard charging their traditional (or Roth) IRA account a fee and taking that fee out of the IRA account (either a mutual fund IRA or a brokerage IRA account)?
Alan S.
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Re: Can you pay a Vanguard IRA account fee with Vanguard taxable account funds?

Post by Alan S. »

water2357 wrote: Mon Jun 05, 2023 8:47 pm Has anyone ever received a 1099 due to Vanguard charging their traditional (or Roth) IRA account a fee and taking that fee out of the IRA account (either a mutual fund IRA or a brokerage IRA account)?
No, a 1099R should never be issued in such a situation. You should have TIRA fees deducted directly as the fee is being paid with never taxed dollars. And a Roth fee should normally be paid from your taxable funds to preserve the Roth balance which will eventually be tax free when qualified.
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water2357
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Re: Can you pay a Vanguard IRA account fee with Vanguard taxable account funds?

Post by water2357 »

Thank you! If for whatever reason Vanguard charges my IRA accounts a fee, at least I don't have to be concerned about receiving a 1099.

When I have more time, I will try to contact Vanguard and ask if they will allow any Roth IRA fee to be paid out of the taxable account.

In the meantime, I am hoping that e-delivery on the IRA brokerage accounts, with the exception of electing paper tax forms, will still be honored by Vanguard as exempting these brokerage accounts from any fees.

If anyone ever finds out definitively if paper tax forms won't trigger the fee, please post. I will also try to contact Vanguard about the paper tax forms when time allows.
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arcticpineapplecorp.
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Re: Can you pay a Vanguard IRA account fee with Vanguard taxable account funds?

Post by arcticpineapplecorp. »

i'm now having to deal with this on my mom's account so i have some questions (will call Vanguard tomorrow to see what they say). Right now she's only showing -$25 for settlement fund inside trad IRA and -$25 for settlement fund inside Roth IRA. Nothing for taxable as of yet, but she'd have the money to cover it as we send dividends to settlement rather than reinvest to avoid wash sales.

Is it possible to move money from her bank account (external) to vanguard to cover the fee or no because she can't put money into a trad IRA or Roth IRA if she has no income (is retired)?

How would she then as suggested above pay the fee from taxable, as it presents the same problem...i.e., money has to be put INTO the IRA/Roth IRA and yet she has no income so how could she contribute to IRA/Roth IRA (wouldn't this new money be considered a contribution)?

In other words, isn't her ONLY option to transfer $25 in shares from her target date fund inside her trad IRA and Roth IRA to the settlement funds within these accounts? And if so, why wouldn't it count as a distribution if the $25 fee is being paid OUT of the account? It's a distribution, but just not to herself, to Vanguard instead.
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