Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
User avatar
Topic Author
Electron
Posts: 2155
Joined: Sat Mar 10, 2007 8:46 pm

Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by Electron »

I'd be interested in how others have handled QCDs or other withdrawals when Vanguard's Automatic RMD Service has already been set up.

The Vanguard RMD Service Agreement states the following:

"Any distribution you take prior to enrolling in the Service will reduce the RMD amount to be distributed through the Service in that year. After you enroll in the Service, distributions you take outside of the Service will not reduce the remaining RMD amount to be paid under the Service, except in certain instances when the Service is updated. This may result in you taking more than the minimum required amount."

It looks like any manual IRA withdrawals will not change amounts scheduled to be withdrawn by the Automatic RMD Service.

Is there a way to update the existing service to incorporate withdrawals already taken or is it necessary to cancel the service and enroll again?

Thanks for any information.
Electron
sport
Posts: 10101
Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by sport »

I just use the RMD service to calculate the amount of my RMDs. I make QCDs throughout the year, so those are manual withdrawals. Late in the year, I make another manual withdrawal to complete my RMD. You do not need to use the automatic service unless you wish to. For me, it is simpler not to.
Dead Man Walking
Posts: 1061
Joined: Wed Nov 07, 2007 6:51 pm

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by Dead Man Walking »

sport wrote: Mon Feb 17, 2020 2:02 pm I just use the RMD service to calculate the amount of my RMDs. I make QCDs throughout the year, so those are manual withdrawals. Late in the year, I make another manual withdrawal to complete my RMD. You do not need to use the automatic service unless you wish to. For me, it is simpler not to.
+1 Manual redemptions are easily done using the website and allow you to time them to fit your needs.

DMW
Alan S.
Posts: 10528
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by Alan S. »

I agree.

If you understand what you are doing, you are better off avoiding RMD service programs. In those cases it is adding another link to the chain that could become a weaker link than you would be on your own. Anyone doing QCDs should avoid these services because of the QCD timing requirements. Keep in mind that if you use a service when you know what you are doing adds the task of fully understanding the limitations and assumptions programmed into the service. You already understand RMDs, but now you also have to understand how the service does things.

Then, you must decide whether you plan to "set it and forget it", closely monitor the distributions during the year, or something in between.

Of course, there are many who should use an RMD service, because they have a much higher chance of making errors than the service does.
Jack FFR1846
Posts: 13475
Joined: Tue Dec 31, 2013 7:05 am
Location: 26 miles, 385 yards west of Copley Square

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by Jack FFR1846 »

Here's what I would be asking anyone providing automatic RMD withdrawal services:

Who pays the penalty when you screw things up?

With manual withdrawals, you can watch what's going on, rather than not knowing what's going on until it's too late. Personally, I'm not overly happy to accept a 50% penalty.
Bogle: Smart Beta is stupid
Gill
Posts: 7227
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by Gill »

sport wrote: Mon Feb 17, 2020 2:02 pm I just use the RMD service to calculate the amount of my RMDs. I make QCDs throughout the year, so those are manual withdrawals. Late in the year, I make another manual withdrawal to complete my RMD. You do not need to use the automatic service unless you wish to. For me, it is simpler not to.
Exactly how I do it. The RMD service is also helpful because, as you make the various QCD withdrawals it updates the balance of your
RMD remaining. I don't want any portion of it sent to me automatically.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
User avatar
Topic Author
Electron
Posts: 2155
Joined: Sat Mar 10, 2007 8:46 pm

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by Electron »

Thanks all for the help. Many excellent suggestions.

Alan - I assume QCD Timing Requirements means taking QCDs before fully satisfying the RMD if the intent is to not exceed the calculated RMD. I also had the impression that there can be problems if QCDs are processed late in the year and checks are either lost or not cashed.
Electron
User avatar
BolderBoy
Posts: 5525
Joined: Wed Apr 07, 2010 12:16 pm
Location: Colorado

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by BolderBoy »

sport wrote: Mon Feb 17, 2020 2:02 pm I just use the RMD service to calculate the amount of my RMDs.
Can you give a quick example of how you do this?
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
Alan S.
Posts: 10528
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by Alan S. »

Electron wrote: Mon Feb 17, 2020 3:24 pm Thanks all for the help. Many excellent suggestions.

Alan - I assume QCD Timing Requirements means taking QCDs before fully satisfying the RMD if the intent is to not exceed the calculated RMD. I also had the impression that there can be problems if QCDs are processed late in the year and checks are either lost or not cashed.
Yes, exactly. And those timing issues are aggravated if a person has multiple TIRAs that trigger the RMD aggregation rules, while RMD services likely treat the IRA under the service as the ONLY IRA. Any distribution from the non service account is applied to the total RMD remaining as of the distribution date, and that could cause a QCD from the RMD service account to be distributed after the total RMD had been completed.
Carl53
Posts: 2094
Joined: Sun Mar 07, 2010 8:26 pm

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by Carl53 »

BolderBoy wrote: Mon Feb 17, 2020 4:23 pm
sport wrote: Mon Feb 17, 2020 2:02 pm I just use the RMD service to calculate the amount of my RMDs.
Can you give a quick example of how you do this?
From the Accounts menu, select "Retirement contributions, distributions & RMDs". Then pick RMD. There will be a set of questions to set up a TIRA RMD determination. For my spouse who had an inherited IRA, there was an instruction to call Vanguard. Once you answer have told it to determine the RMD automatically, it supposedly will notify each year. There was to be an additional selection and set of instructions if you wanted it to be taken out automatically. I was pleased that the number calculated was the same one I had come up with to the penny.
sport
Posts: 10101
Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by sport »

BolderBoy wrote: Mon Feb 17, 2020 4:23 pm
sport wrote: Mon Feb 17, 2020 2:02 pm I just use the RMD service to calculate the amount of my RMDs.
Can you give a quick example of how you do this?
On the Vanguard Website, under IRA distributions, there is a place to select the "RMD service". Under this option, there is a choice of "calculate only". So, each year, Vanguard sends me a letter advising me of my RMD amount (which I verify). On the web site, there is a continuously adjusted number telling me how much more I need to take out for the year.
Lynette
Posts: 2166
Joined: Sun Jul 27, 2014 9:47 am

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by Lynette »

I am trying to simplify my taxes. Thanks to learning about the three-fund strategy a Bogleheads, I did not sell anything in taxation last year. My taxes are so easy this year. It is the same with QCDs. Once I figured out how they worked I decided to take larger QCDs to three organization at the beginning of the year. I called Vanguard and Fidelity to do this. They sent me the checks and I forwarded them to the organizations with a request to send me a letter acknowledging the amount. A few weeks later, I called up both Vanguard and Fidelity to take the RMDs and withhold some tax. I am done for the year with QCDs and RMDs.
sport
Posts: 10101
Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by sport »

Occasionally, at odd times during the year, a friend or relative passes away and the family asks for donations to the deceased's favorite charity. Similarly, they may ask for donations to the heart association, or cancer society, etc. if that was the cause of death. Therefore, I don't want to "use up" all my QCD opportunity too early in the year. Since I want to make these donations anyway, I may as well get a tax break while doing so. When it gets to be around the end of November, I withdraw the remainder of the RMD.
Lynette
Posts: 2166
Joined: Sun Jul 27, 2014 9:47 am

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by Lynette »

I like to restrict the number of charities to whom I donate as I don't want to get on their mailing list. Last year I seemed to get two or three appeals per month from one charity. So this year I called up the charity and politely told them that I made one annual contribution at the beginning of the year and would they please remove me from their mailing list. So far this seems to be working and I have had no further appeals.
sport
Posts: 10101
Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by sport »

Lynette wrote: Mon Feb 17, 2020 7:44 pm I like to restrict the number of charities to whom I donate as I don't want to get on their mailing list.
If only that worked. The charities sell your name and address to other charities. I made a gift to one new charity last year and since then I have been inundated with mail from a number of charities that I have had no previous contact with. Of course, then those charities will sell your info to yet additional charities. It never ends.
User avatar
GerryL
Posts: 3100
Joined: Fri Sep 20, 2013 11:40 pm

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by GerryL »

sport wrote: Mon Feb 17, 2020 2:02 pm I just use the RMD service to calculate the amount of my RMDs. I make QCDs throughout the year, so those are manual withdrawals. Late in the year, I make another manual withdrawal to complete my RMD. You do not need to use the automatic service unless you wish to. For me, it is simpler not to.
Yes. I estimate my RMD and then wait for the final figure from Vanguard. I execute QCDs in the first half of the year. In the 4th quarter I take the rest and request withholding to cover taxes based on what I paid for the previous year (Safe Harbor).

I have created a workbook in Excel to keep track of how much of RMD is going where. (I'm using Excel more to picture the info than to calculate.) I have already put my data in for 2020 and can see that approx 1/3 will go to each QCDs, Fed/State taxes, and Spend/Invest. I have already moved the RMD $$$ into the IRA MM fund so that I don't have to keep thinking about where I will take the RMD from. Don't have to do any more calculations for the rest of the year.
sport
Posts: 10101
Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by sport »

GerryL wrote: Mon Feb 17, 2020 8:21 pm I estimate my RMD and then wait for the final figure from Vanguard.
You don't have to estimate the RMD, you can calculate it exactly yourself. You use your December 31 account balance and the divisor from the appropriate table in IRS Pub 509B. I do this to verify that Vanguard has calculated it correctly. I have never found them to be wrong, but I check to be sure.
Gill
Posts: 7227
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by Gill »

sport wrote: Mon Feb 17, 2020 8:37 pm
GerryL wrote: Mon Feb 17, 2020 8:21 pm I estimate my RMD and then wait for the final figure from Vanguard.
You don't have to estimate the RMD, you can calculate it exactly yourself. You use your December 31 account balance and the divisor from the appropriate table in IRS Pub 509B. I do this to verify that Vanguard has calculated it correctly. I have never found them to be wrong, but I check to be sure.
I differed by one cent with Vanguard’s calculation this year. Never happened before and I couldn’t determine why but just went with the higher amount.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
User avatar
GerryL
Posts: 3100
Joined: Fri Sep 20, 2013 11:40 pm

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by GerryL »

sport wrote: Mon Feb 17, 2020 8:37 pm
GerryL wrote: Mon Feb 17, 2020 8:21 pm I estimate my RMD and then wait for the final figure from Vanguard.
You don't have to estimate the RMD, you can calculate it exactly yourself. You use your December 31 account balance and the divisor from the appropriate table in IRS Pub 509B. I do this to verify that Vanguard has calculated it correctly. I have never found them to be wrong, but I check to be sure.
Actually, I've found that you need to wait a few days after the start of the year because the value of the IRA on Dec 31 may undergo some minor adjustments. Waiting for the "official" number assures that the number is final.
User avatar
LadyGeek
Site Admin
Posts: 71343
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by LadyGeek »

This thread is now in the Personal Finance (Not Investing) forum (withdrawal strategy).
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
Prudence
Posts: 615
Joined: Fri Mar 09, 2012 4:55 pm

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by Prudence »

Timely thread. I plan to do a QCD out of my Vanguard tIRA account (using my money market fund). It appears that there is only one way to do this: manual check to the charity sent to me and then I send the check to the organization. This would be true if I were to make multiple donations to this organization in the same year (i.e. another check for each withdrawal). Correct?
User avatar
GerryL
Posts: 3100
Joined: Fri Sep 20, 2013 11:40 pm

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by GerryL »

Prudence wrote: Mon Feb 17, 2020 10:14 pm Timely thread. I plan to do a QCD out of my Vanguard tIRA account (using my money market fund). It appears that there is only one way to do this: manual check to the charity sent to me and then I send the check to the organization. This would be true if I were to make multiple donations to this organization in the same year (i.e. another check for each withdrawal). Correct?
I don't think I've seen anything about setting up a recurring QCD, so yes, request a check each time. It's a very smooth process. And pretty quick.

When the check arrives, I do what someone on this forum once suggested: I scan the check so I have a copy. I actually clip it to the cover letter I send to the charity and scan them together and keep that for my records.
User avatar
BolderBoy
Posts: 5525
Joined: Wed Apr 07, 2010 12:16 pm
Location: Colorado

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by BolderBoy »

Very timely thread. I thank everyone who has been and will be sharing their "how-to" info!
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
sport
Posts: 10101
Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by sport »

Prudence wrote: Mon Feb 17, 2020 10:14 pm Timely thread. I plan to do a QCD out of my Vanguard tIRA account (using my money market fund). It appears that there is only one way to do this: manual check to the charity sent to me and then I send the check to the organization. This would be true if I were to make multiple donations to this organization in the same year (i.e. another check for each withdrawal). Correct?
The way you describe is correct. However, there is an alternative. You can get check writing privileges on the IRA money market fund. You can then write your own checks. Since the money is coming out of the IRA directly, it meets the requirement for QCDs.
Prudence
Posts: 615
Joined: Fri Mar 09, 2012 4:55 pm

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by Prudence »

Sport: what a simple idea! Have you actually done this with QCDs?
User avatar
Eagle33
Posts: 1316
Joined: Wed Aug 30, 2017 3:20 pm

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by Eagle33 »

sport wrote: Mon Feb 17, 2020 10:28 pm
Prudence wrote: Mon Feb 17, 2020 10:14 pm Timely thread. I plan to do a QCD out of my Vanguard tIRA account (using my money market fund). It appears that there is only one way to do this: manual check to the charity sent to me and then I send the check to the organization. This would be true if I were to make multiple donations to this organization in the same year (i.e. another check for each withdrawal). Correct?
The way you describe is correct. However, there is an alternative. You can get check writing privileges on the IRA money market fund. You can then write your own checks. Since the money is coming out of the IRA directly, it meets the requirement for QCDs.
If you write the checks from the IRA, then QCD is not taken until charity deposits check and bank is paid by Vanguard.

QCD is taken out of your IRA by Vanguard when they send your a check made out to the charity of your choice.

The layer is best for those who do their QCDs/RMDs in December.
Rocket science is not “rocket science” to a rocket scientist, just as personal finance is not “rocket science” to a Boglehead.
Prudence
Posts: 615
Joined: Fri Mar 09, 2012 4:55 pm

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by Prudence »

Eagle33 wrote: Tue Feb 18, 2020 3:15 am
sport wrote: Mon Feb 17, 2020 10:28 pm
Prudence wrote: Mon Feb 17, 2020 10:14 pm Timely thread. I plan to do a QCD out of my Vanguard tIRA account (using my money market fund). It appears that there is only one way to do this: manual check to the charity sent to me and then I send the check to the organization. This would be true if I were to make multiple donations to this organization in the same year (i.e. another check for each withdrawal). Correct?
The way you describe is correct. However, there is an alternative. You can get check writing privileges on the IRA money market fund. You can then write your own checks. Since the money is coming out of the IRA directly, it meets the requirement for QCDs.
If you write the checks from the IRA, then QCD is not taken until charity deposits check and bank is paid by Vanguard.

QCD is taken out of your IRA by Vanguard when they send your a check made out to the charity of your choice.

The layer is best for those who do their QCDs/RMDs in December.
Also, if I do the QCD withdrawal using a Vanguard withdrawal transaction, it would be accounted for and reported by Vanguard at year-end as a non-taxable QCD. Whereas if I write a personal check from my money market fund, it would not, right? (all of the funds in my tIRA are taxable BTW)
kaneohe
Posts: 6786
Joined: Mon Sep 22, 2008 12:38 pm

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by kaneohe »

Prudence wrote: Tue Feb 18, 2020 9:13 am ............................................................................
Also, if I do the QCD withdrawal using a Vanguard withdrawal transaction, it would be accounted for and reported by Vanguard at year-end as a non-taxable QCD. Whereas if I write a personal check from my money market fund, it would not, right? (all of the funds in my tIRA are taxable BTW)
I don't have VG IRA so no experience there. When my broker issues the QCD checks, the 1099R only reflects the QCD as withdrawals and they look taxable just like any other personal withdrawal. It is my understanding that this is normal and the QCD designation is something you are responsible for doing at tax time. Possibly the reason it is done this way is that the broker does not want to be responsible for blessing this as a legitimate QCD.....e.g. you may give to an charity that is not approved and broker does not want the responsibility for investigating.
sport
Posts: 10101
Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by sport »

Prudence wrote: Mon Feb 17, 2020 10:31 pm Sport: what a simple idea! Have you actually done this with QCDs?
Yes, I have made about a dozen QCDs this way. If you have a Vanguard mutual fund account, the checks are marked "not valid for less than $250.00". Vanguard tells me they do not enforce that, but I would not want to use such a check for less than that amount. I was also told that if you have a brokerage account, the checks do not have that marking. I don't know why they are different.
sport
Posts: 10101
Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by sport »

kaneohe wrote: Tue Feb 18, 2020 9:21 am
Prudence wrote: Tue Feb 18, 2020 9:13 am ............................................................................
Also, if I do the QCD withdrawal using a Vanguard withdrawal transaction, it would be accounted for and reported by Vanguard at year-end as a non-taxable QCD. Whereas if I write a personal check from my money market fund, it would not, right? (all of the funds in my tIRA are taxable BTW)
I don't have VG IRA so no experience there. When my broker issues the QCD checks, the 1099R only reflects the QCD as withdrawals and they look taxable just like any other personal withdrawal. It is my understanding that this is normal and the QCD designation is something you are responsible for doing at tax time. Possibly the reason it is done this way is that the broker does not want to be responsible for blessing this as a legitimate QCD.....e.g. you may give to an charity that is not approved and broker does not want the responsibility for investigating.
kaneohe is correct. Vanguard does not know if you are making a valid QCD in either case. All QCD withdrawals are categorized as "ordinary taxable withdrawals" on the 1099R. The QCD reduction is done on your 1040 tax form. Therefore, the only official documentation you have for a QCD is the letter of acknowledgement you get from the charity. So, you should keep track of those letters and if you do not get one, contact the charity and ask for it. If you should get audited by the IRS, you would need that. I also keep copies of the checks as a backup.
User avatar
Topic Author
Electron
Posts: 2155
Joined: Sat Mar 10, 2007 8:46 pm

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by Electron »

Jack FFR1846 wrote: Mon Feb 17, 2020 2:49 pm Here's what I would be asking anyone providing automatic RMD withdrawal services:

Who pays the penalty when you screw things up?

With manual withdrawals, you can watch what's going on, rather than not knowing what's going on until it's too late. Personally, I'm not overly happy to accept a 50% penalty.
Vanguard sends out a formal confirmation and RMD Service Agreement after the Automatic RMD is set up. It would seem quite unlikely that the RMD requirements would not be satisfied before the end of the year.

The Automatic RMD becomes a pending Automatic Fund Exchange or Automatic Withdrawal that you can see in your account. Transactions are scheduled to occur on a future date.

These pending transactions are probably one reason that the Automatic RMD can't make adjustments when other withdrawals are processed. There would also be the complexity of all the withdrawal and schedule options.

In the unlikely event that the RMD was not satisfied and a 50% penalty assessed, one can file IRS Form 5329 and request a waiver in section IX.

An Automatic RMD may still be worth setting up for those taking advantage of tax deferred compounding and withdrawing late in the year. A planned withdrawal might not take place for a variety of possible reasons.
Electron
Prudence
Posts: 615
Joined: Fri Mar 09, 2012 4:55 pm

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by Prudence »

Awesome. Thanks Sport and Kaneohe!
pshonore
Posts: 7157
Joined: Sun Jun 28, 2009 2:21 pm

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by pshonore »

sport wrote: Tue Feb 18, 2020 11:58 am
kaneohe wrote: Tue Feb 18, 2020 9:21 am
Prudence wrote: Tue Feb 18, 2020 9:13 am ............................................................................
Also, if I do the QCD withdrawal using a Vanguard withdrawal transaction, it would be accounted for and reported by Vanguard at year-end as a non-taxable QCD. Whereas if I write a personal check from my money market fund, it would not, right? (all of the funds in my tIRA are taxable BTW)
I don't have VG IRA so no experience there. When my broker issues the QCD checks, the 1099R only reflects the QCD as withdrawals and they look taxable just like any other personal withdrawal. It is my understanding that this is normal and the QCD designation is something you are responsible for doing at tax time. Possibly the reason it is done this way is that the broker does not want to be responsible for blessing this as a legitimate QCD.....e.g. you may give to an charity that is not approved and broker does not want the responsibility for investigating.
kaneohe is correct. Vanguard does not know if you are making a valid QCD in either case. All QCD withdrawals are categorized as "ordinary taxable withdrawals" on the 1099R. The QCD reduction is done on your 1040 tax form. Therefore, the only official documentation you have for a QCD is the letter of acknowledgement you get from the charity. So, you should keep track of those letters and if you do not get one, contact the charity and ask for it. If you should get audited by the IRS, you would need that. I also keep copies of the checks as a backup.
I
Pretty much agree with the above. It is CRITiCAL to make sure your tax software does this. In TT, there are two ways to do it. If you fill out the 1099R form yourself, you must scroll down and fill in the box for QCDs. If you use the Interview method, TT will ask if you made a QCD. In either case the proper numbers should appear in 4a and 4b of Form 1040 with "QCD" printed next to Line 4b
User avatar
HueyLD
Posts: 8227
Joined: Mon Jan 14, 2008 10:30 am

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by HueyLD »

Electron wrote: Mon Feb 17, 2020 1:55 pm I'd be interested in how others have handled QCDs or other withdrawals when Vanguard's Automatic RMD Service has already been set up.

The Vanguard RMD Service Agreement states the following:

"Any distribution you take prior to enrolling in the Service will reduce the RMD amount to be distributed through the Service in that year. After you enroll in the Service, distributions you take outside of the Service will not reduce the remaining RMD amount to be paid under the Service, except in certain instances when the Service is updated. This may result in you taking more than the minimum required amount."

It looks like any manual IRA withdrawals will not change amounts scheduled to be withdrawn by the Automatic RMD Service.

Is there a way to update the existing service to incorporate withdrawals already taken or is it necessary to cancel the service and enroll again?

Thanks for any information.
You can suspend the RMD service. Note that a suspension has the same effect of cancelling the service.

Afterwards, make QCD withdrawals. When all QCDs are completed, you can sign up for the RMD service again.

If you plan to do QCDs every year, it may be better not to enroll in the RMD service.
MathIsMyWayr
Posts: 2775
Joined: Mon Mar 27, 2017 10:47 pm
Location: CA

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by MathIsMyWayr »

sport wrote: Mon Feb 17, 2020 8:37 pm
GerryL wrote: Mon Feb 17, 2020 8:21 pm I estimate my RMD and then wait for the final figure from Vanguard.
You don't have to estimate the RMD, you can calculate it exactly yourself. You use your December 31 account balance and the divisor from the appropriate table in IRS Pub 509B. I do this to verify that Vanguard has calculated it correctly. I have never found them to be wrong, but I check to be sure.
How do you find the exact official 12/31 account balance? Do you go by the statement? When I log on to Vanguard or Fidelity, I can only see the current balance only.
User avatar
HueyLD
Posts: 8227
Joined: Mon Jan 14, 2008 10:30 am

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by HueyLD »

Yes, look at your year end statements.
Alan S.
Posts: 10528
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by Alan S. »

MathIsMyWayr wrote: Wed Feb 19, 2020 8:46 am
sport wrote: Mon Feb 17, 2020 8:37 pm
GerryL wrote: Mon Feb 17, 2020 8:21 pm I estimate my RMD and then wait for the final figure from Vanguard.
You don't have to estimate the RMD, you can calculate it exactly yourself. You use your December 31 account balance and the divisor from the appropriate table in IRS Pub 509B. I do this to verify that Vanguard has calculated it correctly. I have never found them to be wrong, but I check to be sure.
How do you find the exact official 12/31 account balance? Do you go by the statement? When I log on to Vanguard or Fidelity, I can only see the current balance only.
Some year end statements will show a total value including accrued income (interest and dividends). The accrued income should be backed out, or the total without it should be used for RMD purposes (and also for line 6 of Form 8606 purposes, if applicable). The result should agree with the Form 5498 year end balance sent to the IRS.
Prudence
Posts: 615
Joined: Fri Mar 09, 2012 4:55 pm

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by Prudence »

pshonore wrote: Tue Feb 18, 2020 4:37 pm
sport wrote: Tue Feb 18, 2020 11:58 am
kaneohe wrote: Tue Feb 18, 2020 9:21 am
Prudence wrote: Tue Feb 18, 2020 9:13 am ............................................................................
Also, if I do the QCD withdrawal using a Vanguard withdrawal transaction, it would be accounted for and reported by Vanguard at year-end as a non-taxable QCD. Whereas if I write a personal check from my money market fund, it would not, right? (all of the funds in my tIRA are taxable BTW)
I don't have VG IRA so no experience there. When my broker issues the QCD checks, the 1099R only reflects the QCD as withdrawals and they look taxable just like any other personal withdrawal. It is my understanding that this is normal and the QCD designation is something you are responsible for doing at tax time. Possibly the reason it is done this way is that the broker does not want to be responsible for blessing this as a legitimate QCD.....e.g. you may give to an charity that is not approved and broker does not want the responsibility for investigating.
kaneohe is correct. Vanguard does not know if you are making a valid QCD in either case. All QCD withdrawals are categorized as "ordinary taxable withdrawals" on the 1099R. The QCD reduction is done on your 1040 tax form. Therefore, the only official documentation you have for a QCD is the letter of acknowledgement you get from the charity. So, you should keep track of those letters and if you do not get one, contact the charity and ask for it. If you should get audited by the IRS, you would need that. I also keep copies of the checks as a backup.
I
Pretty much agree with the above. It is CRITiCAL to make sure your tax software does this. In TT, there are two ways to do it. If you fill out the 1099R form yourself, you must scroll down and fill in the box for QCDs. If you use the Interview method, TT will ask if you made a QCD. In either case the proper numbers should appear in 4a and 4b of Form 1040 with "QCD" printed next to Line 4b
Does anyone know if H&R Block software allows the same two ways to fill in the QCD reduction?
User avatar
Topic Author
Electron
Posts: 2155
Joined: Sat Mar 10, 2007 8:46 pm

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by Electron »

HueyLD wrote: Wed Feb 19, 2020 7:43 amYou can suspend the RMD service. Note that a suspension has the same effect of cancelling the service.

Afterwards, make QCD withdrawals. When all QCDs are completed, you can sign up for the RMD service again.
Thanks for the reply. The Automatic RMD does allow you to View or Edit the details which I went through recently to change the date of the distribution. Any change results in a new confirmation document.

I'm hoping that the edit process picks up any manual withdrawals and provides an easy update on the remaining balance. That is something I might test later in the year.
Electron
Lynette
Posts: 2166
Joined: Sun Jul 27, 2014 9:47 am

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by Lynette »

MathIsMyWayr wrote: Wed Feb 19, 2020 8:46 am
sport wrote: Mon Feb 17, 2020 8:37 pm
GerryL wrote: Mon Feb 17, 2020 8:21 pm I estimate my RMD and then wait for the final figure from Vanguard.
You don't have to estimate the RMD, you can calculate it exactly yourself. You use your December 31 account balance and the divisor from the appropriate table in IRS Pub 509B. I do this to verify that Vanguard has calculated it correctly. I have never found them to be wrong, but I check to be sure.
How do you find the exact official 12/31 account balance? Do you go by the statement? When I log on to Vanguard or Fidelity, I can only see the current balance only.
Both Vanguard and Fidelity give the amount I need to withhold for RMDs each year. I then double check my statements for 12/31 to see if they got the amount correct. Then I do my own calculation. They have always been correct. Steps for Vanguard

1. Go to my Accounts.
2. Click on Retirements Contributions, Distributions and RMDs
3. In the contributions section make sure that you have the correct year.
4. Click on Middle tab - Retirement Minimum Distributions.

This is how my screen looks after I have clicked on RMDs

Retirement summary

Contributions Distributions Required minimum distribution (RMD) Retirement planning

Congratulations! You've satisfied your RMD for your Vanguard accounts this year.

Your RMD calculation for 2020—IRAs
RMD amount you must take by 12/31/2020 .........$xxxxx
Distributions you've taken year to date ..............$xxxxx
Remaining RMD amount ..............................$0.00

If I click on the Distributions tab, it gives me the details of the date, distribution and tax withheld.

This activity is reflected in various places. I get an email when the check is made. This is an example in the confirmation tab.

Activity in your settlement fund that generated a confirmation is displayed below.

Trade date Transaction Amount
01/24/2020 Check #1102092 issued to

CHARITY NAME

C/O MY NAME AND ADDRESS

When I receive the check, I tear off the name of the charity as well as the details of the check and then mail it to the charity. I ask them for a confirmation.

The information is stored in many locations and it is simple .. once you get used to the process.

Lynette
User avatar
GerryL
Posts: 3100
Joined: Fri Sep 20, 2013 11:40 pm

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by GerryL »

Prudence wrote: Wed Feb 19, 2020 1:39 pm
pshonore wrote: Tue Feb 18, 2020 4:37 pm
sport wrote: Tue Feb 18, 2020 11:58 am
kaneohe wrote: Tue Feb 18, 2020 9:21 am
Prudence wrote: Tue Feb 18, 2020 9:13 am ............................................................................
Also, if I do the QCD withdrawal using a Vanguard withdrawal transaction, it would be accounted for and reported by Vanguard at year-end as a non-taxable QCD. Whereas if I write a personal check from my money market fund, it would not, right? (all of the funds in my tIRA are taxable BTW)
I don't have VG IRA so no experience there. When my broker issues the QCD checks, the 1099R only reflects the QCD as withdrawals and they look taxable just like any other personal withdrawal. It is my understanding that this is normal and the QCD designation is something you are responsible for doing at tax time. Possibly the reason it is done this way is that the broker does not want to be responsible for blessing this as a legitimate QCD.....e.g. you may give to an charity that is not approved and broker does not want the responsibility for investigating.
kaneohe is correct. Vanguard does not know if you are making a valid QCD in either case. All QCD withdrawals are categorized as "ordinary taxable withdrawals" on the 1099R. The QCD reduction is done on your 1040 tax form. Therefore, the only official documentation you have for a QCD is the letter of acknowledgement you get from the charity. So, you should keep track of those letters and if you do not get one, contact the charity and ask for it. If you should get audited by the IRS, you would need that. I also keep copies of the checks as a backup.
I
Pretty much agree with the above. It is CRITiCAL to make sure your tax software does this. In TT, there are two ways to do it. If you fill out the 1099R form yourself, you must scroll down and fill in the box for QCDs. If you use the Interview method, TT will ask if you made a QCD. In either case the proper numbers should appear in 4a and 4b of Form 1040 with "QCD" printed next to Line 4b
Does anyone know if H&R Block software allows the same two ways to fill in the QCD reduction?
I think I used the HRB interview method when entered RMD info, but I often go back to check and/or adjust figures, since I often start with estimates in some fields before the tax docs show up. That said, my finished 1040SR line 4a IRA Distributions has a notation "QCD" and line 4b Taxable Amount is my full RMD minus QCD and the (tiny) non-deductible portion. You should be fine with HRB.
Lynette
Posts: 2166
Joined: Sun Jul 27, 2014 9:47 am

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by Lynette »

Prudence wrote: Wed Feb 19, 2020 1:39 pm Does anyone know if H&R Block software allows the same two ways to fill in the QCD reduction?
Now that I am retired, I decided that I needed to learn what my accountant was doing so I filled out the 1040 manually by reading the instructions. Then I bought the HR Block software to see how this worked. I will have my accountant do the real work and be able to verify if I was correct.

I was able to get the HR Block software to print QCD on Line 4c of the 1040. I think whether you import the 1099R or enter it manually, it is critical is to ensure that you fill in both boxes for line 7 in the HR Block software. My 1099R has Box 7 in the Distribution Code. Next to it is box IRA/SEP/Simple with an X in it. Using the HR Block software, I entered 7 for Distribution Code and then in the next box I chose K - IRA without readily available FMV (whatever that is!). After a few more screens with questions, I came to the question - about whether all or only part of it was a QCD. On the next screen I had the opportunity to enter the QCD amount.
Prudence
Posts: 615
Joined: Fri Mar 09, 2012 4:55 pm

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by Prudence »

Super, thank you. I will be making my first QCD in 2020 so I will confirm that it works for me next year.
sport
Posts: 10101
Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by sport »

Prudence wrote: Wed Feb 19, 2020 7:14 pm Super, thank you. I will be making my first QCD in 2020 so I will confirm that it works for me next year.
Be sure you are at least 70.5 years old at the time of the donation(s).
User avatar
Topic Author
Electron
Posts: 2155
Joined: Sat Mar 10, 2007 8:46 pm

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by Electron »

Gill wrote: Mon Feb 17, 2020 9:06 pmI differed by one cent with Vanguard’s calculation this year. Never happened before and I couldn’t determine why but just went with the higher amount.
Last year I noticed the same thing with my two IRA accounts. It turned out that I had to calculate the RMD for each account separately and then add the two amounts for the combined total. Rounding comes into play.

Vanguard's calculation was correct.
Electron
Prudence
Posts: 615
Joined: Fri Mar 09, 2012 4:55 pm

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by Prudence »

sport wrote: Wed Feb 19, 2020 7:18 pm
Prudence wrote: Wed Feb 19, 2020 7:14 pm Super, thank you. I will be making my first QCD in 2020 so I will confirm that it works for me next year.
Be sure you are at least 70.5 years old at the time of the donation(s).
Got it, thanks!
GaryA505
Posts: 845
Joined: Wed Feb 08, 2017 2:59 pm
Location: New Mexico

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by GaryA505 »

Can anyone answer this. For the Vanguard automatic RMD service, can they take the RMD from any mutual fund or ETF in your account, or only from Vanguard mutual funds?
RudyS
Posts: 2175
Joined: Tue Oct 27, 2015 10:11 am

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by RudyS »

I do not use the automatic withdrawal service, just VG's calculation of each year's RMD. That is so I can adjust withholding to get to the safe harbor amount for income tax.
User avatar
GerryL
Posts: 3100
Joined: Fri Sep 20, 2013 11:40 pm

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by GerryL »

GaryA505 wrote: Thu Jul 30, 2020 3:55 pm Can anyone answer this. For the Vanguard automatic RMD service, can they take the RMD from any mutual fund or ETF in your account, or only from Vanguard mutual funds?
Gary,
I don't know the answer to your question, but you could always move the amount of your RMD from various funds in the IRA into a VG cash/settlement fund in your IRA early in the year and direct the Auto RMD service to distribute from that fund. Actually, you could even move an estimate of the RMD the previous year. Doesn't matter as long as it is all within the IRA.

I don't use the auto RMD service, but I start the year out with enough in my IRA cash/settlement fund so that I can easily do QCDs or other distributions later in the year without pondering what is moving up or down each time.
User avatar
Topic Author
Electron
Posts: 2155
Joined: Sat Mar 10, 2007 8:46 pm

Re: Vanguard's Automatic RMD Service, QCDs, and Other Withdrawals

Post by Electron »

GaryA505 wrote: Thu Jul 30, 2020 3:55 pm Can anyone answer this. For the Vanguard automatic RMD service, can they take the RMD from any mutual fund or ETF in your account, or only from Vanguard mutual funds?
My Vanguard 2020 RMD Service Agreement states the following under Distribution options:

"You can take your RMD amount only from Vanguard mutual funds."

I believe this is because you can only withdraw an exact dollar amount from a mutual fund. You can't do that with a stock or ETF where trades are done with some number of whole shares at an unknown price.

One solution with the stock or ETF is to manually sell enough shares to cover the RMD which would then be taken from the settlement fund.
Last edited by Electron on Sat Aug 01, 2020 1:52 pm, edited 1 time in total.
Electron
Post Reply