Why will VG not withhold state tax on RMDs from certain states?

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rosieandnat
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Why will VG not withhold state tax on RMDs from certain states?

Post by rosieandnat »

In my case: Virginia. Thanks. Rosie
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JoMoney
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Re: Why will VG not withhold state tax on RMDs from certain states?

Post by JoMoney »

According to the notes in this Fidelity document https://institutional.fidelity.com/app/ ... 704656.PDF

There are about 11 states where withholding is not allowed. VA is not one of those, but it is one of the states that do not have a mandatory minimum withholding requirement, so you have to specify specifically how much you want withheld. Perhaps Vanguard will withhold, they just won't "automatically" withhold unless you tell them to and how much specifically.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
jebmke
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Re: Why will VG not withhold state tax on RMDs from certain states?

Post by jebmke »

Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
cspitzer
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Re: Why will VG not withhold state tax on RMDs from certain states?

Post by cspitzer »

I found the following on page 5 of the Virginia Department of Taxation Income Tax Withholding Guide for Employers. I am presuming that your RMD is from an IRA:

Payments Exempt From Withholding
Payments that are exempt from federal withholding are also exempt from Virginia withholding. In addition, the following payments are exempt from Virginia withholding:

* Payments made for acting in or serving as a crew member for movies, television series, commercials, or promotional films that are filmed totally or partially in Virginia by an employer that conducts business in Virginia for less than 90 days and that edits, processes and markets the completed project outside Virginia
* Payments made from an IRA or SEP
* Payments made to nonresident employees of rail carriers, motor carriers, and water carriers
* Payments made to resident and nonresident merchant seamen

https://www.tax.virginia.gov/sites/defa ... ctions.pdf
Topic Author
rosieandnat
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Re: Why will VG not withhold state tax on RMDs from certain states?

Post by rosieandnat »

Ok, I now see. VG will not withhold state tax from RMDs unless the state requires the withholding, even if you request withholding. Virginia does not require withholding for RMDs from IRAs. Even though I now see the line VG is drawing, I do not understand why, as a matter of customer service, VG is unwilling to withhold for any state if the account holder requests it. VG has created the mechanism that allows it to be done for the many states that require it. How difficult could it be to apply that mechanism to other states?
sport
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Re: Why will VG not withhold state tax on RMDs from certain states?

Post by sport »

Vanguard will also not withhold taxes for Ohio. Some years ago, while doing my state taxes, I noted that the instructions had contact information for the state tax commissioner. So, I contacted him and asked if Vanguard could withhold taxes for Ohio. I was told that such withholding was not required, but the state would accept withholding if Vanguard chose to do so. They also gave me contact information to forward to Vanguard. This contact would provide instructions to Vanguard for withholding. I forwarded that information to Vanguard. Unfortunately, that was the end of it. When I have occasion to contact Vanguard, I register a complaint about the lack of Ohio income tax withholding. My hope is that if enough clients complain about this, perhaps Vanguard will offer the service.
sport
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Re: Why will VG not withhold state tax on RMDs from certain states?

Post by sport »

rosieandnat wrote: Wed Jul 14, 2021 9:00 am VG has created the mechanism that allows it to be done for the many states that require it. How difficult could it be to apply that mechanism to other states?
I have posed that same question to Vanguard. I have not received a good answer.
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rosieandnat
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Re: Why will VG not withhold state tax on RMDs from certain states?

Post by rosieandnat »

TIAA withholds for any state.
cspitzer
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Re: Why will VG not withhold state tax on RMDs from certain states?

Post by cspitzer »

I work in the tax department for a large corporation. A few of the main reasons why my company is reluctant to do “courtesy” tax withholdings include:

1. Costs – Performing courtesy tax withholdings will entail registering with the applicable states or localities, filing regular returns, remitting withheld taxes, etc.
2. Exposure – Significant penalties and interest can be assessed if unintentional mistakes occur (e.g., withheld taxes are deposit late, returns filed late, IRS Form 1099s are incorrectly prepared, etc.)
3. Consistency – If we make an exception to allow courtesy tax withholdings for one state or locality, it would be unfair not to allow it for others.

Vanguard may be reluctant to perform courtesy tax withholdings for states that do not require it for the same reasons I mentioned above.
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GerryL
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Re: Why will VG not withhold state tax on RMDs from certain states?

Post by GerryL »

This is just off the top of my head (memory), but I thought that for those states that Vanguard will accommodate withholding, you also have to be withholding for federal taxes. In other words, if I want to have Oregon state taxes withheld from my RMD, I also have to request federal taxes be withheld. No Fed withholding then no state withholding.
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LilyFleur
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Re: Why will VG not withhold state tax on RMDs from certain states?

Post by LilyFleur »

Schwab withheld both federal and state taxes for me on an RMD, in the amounts I requested. In fact, except for a quite small amount that they said I had to take, most of the RMD was withheld for taxes.
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celia
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Re: Why will VG not withhold state tax on RMDs from certain states?

Post by celia »

rosieandnat wrote: Wed Jul 14, 2021 9:00 am VG has created the mechanism that allows it to be done for the many states that require it. How difficult could it be to apply that mechanism to other states?
I think that from a user interface perspective, if my state did not require withholding but Vanguard offered it to me, I would be questioning why they were doing that. People in my state would start selecting state withholding (“accidentally”), then when they found out it wasn’t required, they would be mad.

I suspect the number of people who would start complaining would be much greater than the number requesting it.

Besides, if you know you will be under-withheld for federal and/or state, there is already a mechanism in place to change your withholdings called a Form W-4. Your state form will differ depending on your state. You can file these for your employer, pension plan, or SS.
dkarst
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Re: Why will VG not withhold state tax on RMDs from certain states?

Post by dkarst »

celia wrote: Thu Jul 15, 2021 12:33 am
rosieandnat wrote: Wed Jul 14, 2021 9:00 am VG has created the mechanism that allows it to be done for the many states that require it. How difficult could it be to apply that mechanism to other states?
I think that from a user interface perspective, if my state did not require withholding but Vanguard offered it to me, I would be questioning why they were doing that. People in my state would start selecting state withholding (“accidentally”), then when they found out it wasn’t required, they would be mad.

I suspect the number of people who would start complaining would be much greater than the number requesting it.

Besides, if you know you will be under-withheld for federal and/or state, there is already a mechanism in place to change your withholdings called a Form W-4. Your state form will differ depending on your state. You can file these for your employer, pension plan, or SS.
Besides, if you know you will be under-withheld for federal and/or state, there is already a mechanism in place to change your withholdings called a Form W-4. Your state form will differ depending on your state. You can file these for your employer (NOPE, retired no employer), pension plan (NOPE, no pension), or SS (NOPE, SS doesn't withhold state tax).

Colored edits above are mine... As has been pointed out above, if your state doesn't mandate it, VG won't withhold state tax. I've brought this up numerous times and threatened to move a large IRA come RMD time if they don't change but it's gone nowhere as others have noted. Fidelity and Schwab can do it and it is just an example of VG being lazy thrifty and devoting their stretched IT resources to screwing around with portfolio watch or mobile aps.

Yea, I know I could accomplish the withholding via filing/paying estimated state taxes but it seems like 1. VG wouldn't want to lose customers due to poor service and 2. I'm being lazy like Vanguard.
sport
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Re: Why will VG not withhold state tax on RMDs from certain states?

Post by sport »

celia wrote: Thu Jul 15, 2021 12:33 am
rosieandnat wrote: Wed Jul 14, 2021 9:00 am VG has created the mechanism that allows it to be done for the many states that require it. How difficult could it be to apply that mechanism to other states?
I think that from a user interface perspective, if my state did not require withholding but Vanguard offered it to me, I would be questioning why they were doing that. People in my state would start selecting state withholding (“accidentally”), then when they found out it wasn’t required, they would be mad.

I suspect the number of people who would start complaining would be much greater than the number requesting it.

Besides, if you know you will be under-withheld for federal and/or state, there is already a mechanism in place to change your withholdings called a Form W-4. Your state form will differ depending on your state. You can file these for your employer, pension plan, or SS.
They offer Federal Withholding when it is not required, and no one complains about "accidentally" withholding federal taxes. So, this argument against offering state withholding is not a strong one. Besides, other large brokers have it for their clients, so it must not be too bad a thing to offer.
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