Vanguard: Important information about your [IRA] checkwriting service

Dave

Dear Vanguard Client,

We're writing to inform you that Vanguard will be permanently discontinuing checkwriting services for your IRA account on Sept‍ember 2‍4,‍ 20‍25. This change is part of our ongoing efforts to enhance the security of your retirement savings. We've noticed that many clients have already transitioned to more secure and convenient options, such as electronic bank transfers.

What you need to know

= Checkbook orders will no longer be accepted after Ju‍ly 1, ‍202‍5. If you need new checks before the service ends, please place your order before this date.
= Checkwriting service will be fully removed on IRAs on Sept‍ember 2‍4, ‍20‍25. After this date, your checks will not be processed.
= Nonretirement accounts remain unaffected by this change.

Dave

So: How are we supposed to write QCD checks to our favorite charity?

Observant1

It appears Vanguard can cut a QCD check for you.
https://investor.vanguard.com/investor-resources-education/faqs/how-do-i-take-a-qualified-charitable-distribution-qcd

Dave

Yes, but that requires planning and a time cycle. What if I'm at a small town's (qualified) museum and I want to share the love by writing a quick QCD check?

I'm hoping they (Vanguard) change their position. I called and their phone rep claimed this did not apply to existing accounts... Right. Read the letter. No mention of existing or new accounts.

msf

There is a downside in making QCDs by writing your own checks from your IRA. (That's what you can no longer do at Vanguard as of Sept.)

Roth conversions can only be done after you meet your annual RMD requirement (if any). When Vanguard, or Fidelity, or any custodian cuts QCD checks, the QCD/RMD withdrawals are as of that date. So you can do a Roth conversion immediately thereafter. But if you write your own checks, your RMD won't be met until those checks actually clear. That could take days, weeks, or even months.

Dave

msf said:

Roth conversions can only be done after you meet your annual RMD requirement

Not strictly true. Roth conversions ( a taxable event ) can be done at any time. As can QCD's. The caveat is that, if required, the full RMD amount ( taxable ) must still be taken ( sometime ) during the applicable tax year.

The conversions and/or QCD's do not count towards the total RMD amount. And I say 'total' because, if you have more than one IRA ( Traditional and/or Rollover ), the RMD does not have to be split proportionally, the total amount required *can* be taken from only one account or in any other ratio you may desire. The RMD is determined based on the COB December 31st total of *all* your Traditional/Rollover IRA's.

On the other hand, 401's must be RMD'd individually/separately.

[ IMHO ]

/dave

[ edit: It was late. QCD's *do* normally count towards your RMD. ]

msf

The conversions and/or QCD's do not count towards the total RMD amount

Fidelity: "QCDs can be counted toward satisfying your required minimum distributions (RMDs) for the year, as long as certain rules are met."

https://www.fidelity.com/retirement-ira/required-minimum-distributions-qcds

Roth conversions ( a taxable event ) can be done at any time. ... The caveat is that, if required, the full RMD amount ( taxable ) must still be taken ( sometime ) during the applicable tax year.

I used to think so also. But the IRS is clear on this point. Money withdrawn from an IRA before the annual RMD is met is ineligible to be put back into any IRA (whether traditional or Roth). The RMD must come first.

Ed Slott (site): " All IRA RMDs Must Be Satisfied Prior to Doing a Roth Conversion. ... If a person has multiple IRAs, even if they are held at different custodians, the total aggregated IRA required minimum distribution (RMD) must be withdrawn before any Roth IRA conversion (or 60-day rollover) can be completed. "

https://irahelp.com/slottreport/new-rule-all-ira-rmds-must-be-satisfied-prior-to-doing-a-roth-conversion/

The RMD is determined based on the COB December 31st total of *all* your Traditional/Rollover IRA's.

Usually but not always. For example, if you're in the process of doing a 60 day rollover at the end of the year (pulling money out of your IRA on Dec 29th and rolling it back in on Jan 3rd), you have to add back that money to the COB Dec 31st balances in calculating your RMD.

IRS Pub 590-B: "Outstanding rollovers. The IRA account balance is adjusted by outstanding rollovers that aren't in any account at the end of the preceding year."
https://www.irs.gov/publications/p590b#en_US_2024_publink100090063

On the other hand, 401's must be RMD'd individually/seperately

Though you can aggregate 403(b) withdrawals for RMDs.
https://www.irs.gov/retirement-plans/rmd-comparison-chart-iras-vs-defined-contribution-plans

yogibearbull

There are many sources that point out that the first withdrawals from T-IRA are assumed to be RMDs. This can create trouble sometimes. For example, it you do Roth Conversion as the 1st transaction, it won't really count as Conversion, but contribution - so, the amount may be over the limit or ineligible if there are no earnings.

Allowed QCDs may be more than required RMDs. So, proper planning of sequencing can be done.

Dave

Sigh. IMHO, it should be obvious that humble opinions are sometimes in error. But I must ask: How would the tax authorities know if their multiplicity of regulations are actually followed unless a deep audit is done?

And if audited, what are the chances that, as long as the totals came out in alignment, 'they' would actually issue some kind of penalty? [ All very hypothetical... Anyone have any personal experiences? ]

Currently (?) the annual tax forms issued by the IRA/40n custodian(s) have no time line indicated. It's just an annual lump. And the taxable, non-taxable, conversion, or rollover allocations are self-entered on your 1040.

msf

Even in this day and age, I'd like to think that James R. Schlesinger was right when he paraphrased Bernard Baruch as: “Everybody is entitled to his own views. Everybody is not entitled to his own facts.”

And that's my opinion

How does the IRS know that the checks you wrote out of your IRA were actually charitable contributions? If you're not concerned about the IRS ever checking (pun not intended) except in a "deep audit", why hold onto receipts?

(N.B. cancelled checks are not sufficient evidence of a QCD payment, esp. since 100% of a QCD must be an eligible contribution; no benefits received. Which is why QCDs cannot be used for MFO membership.)

I've gotten my share of letters from the IRS over the years CP2000s and others. With only one exception I can think of, they've all been because of IRS mistakes. No matter. You never know what will trigger an inquiry from the IRS.

One time (back when returns were submitted by mail) the IRS lost my Schedule B. Which was interesting because they had my Schedule A that was on the flip side of the page.
 
I'd guess (i.e. IMHO) the chances are virtually certain that the IRS will penalize you if it discovers that you made an excess contribution as Yogi explained. My own experience with a penalty was when, due to my error, I accidentally underpaid my taxes due and was assessed an interest penalty.

The IRS was sympathetic to the fact that I'd paid in much more estimates than was owed and even left the refund money with them as an estimate for next year. But because that money was now in a different IRS pocket, the IRS refused to waive the interest penalty.

Personally, I have issues with the idea that if one won't get penalized, breaking the law is okay. Right now where I live, we have a new regulation that says we must place compostable waste in a separate bin for collection. But the city is waiving penalties this year. IMHO that is not a license to mix compostables with other trash (regardless of whether one considers it wrong for environmental or legal reasons).

Derf

@msf How many bins will you be required to have in the near future? Three? Soon you'll need a bigger garage! Te-He !!

Old_Joe

Hell, we've had three out here in CA for years and years. Not that big a deal.

Derf

@Old_Joe You must have a large garage or tiny bins.

Old_Joe

@Derf- Like these-



The black is for garbage, the green is for compostable waste (kitchen scraps and garden / lawn debris) and the larger blue one is for recyclables. Everybody has three, and businesses have larger ones and multiple ones if needed.

Add: I just realized that this thread is supposed to be "Vanguard: Important information about your [IRA] checkwriting service". How the hell did we get to garbage cans?

Add to the Add: Oh, I see... it's all msf's doing.

Observant1

Same over here.

Black (trash) - 20 gal.
Blue (recyclables) - 96 gal.
Green (yard waste, compostables) - 96 gal.

Dave

@Old_Joe: "How the hell did we get to garbage cans?"

Perhaps because (IMHO) Vanguard is going to the dumps? [ I am not enthralled with their continuing policy changes. ]

But back to the current thread: A 96 gallon totter is rather large. Are these collections weekly/bi-weekly/monthly?

A couple of times a year I can generate a considerable quantity of yard waste, e.g. 300 gal., but on a recurring monthly basis, I doubt I'd hit 10. And it goes into double 4x4x4 bins in the back yard. As for recyclables, my 96 gallon totter is good for ~6 weeks. Trash: a 5 gallon bag once a week.

Are we (spouse & myself) just extremely 'efficient' ???