Change in Share Class Re: Vanguard
Vanguard has now lowered its minimum amount requirements to qualify for their lower-cost Admiral Shares. A few of my Funds (but not ALL) in my SEPP IRA account qualify for the change from Investor Shares to the Admiral Shares. Just wanted to make sure a change from Investor Shares to the Admiral Shares will not BUST my SEPP plan, as I only have two-months to go until my plan is completed and don’t want any mess-up at this point.
According to Vanguard this change from Investor Shares to Admiral Shares is a tax-free event and will not cause a problem with my SEPP IRA account. The Rep. said FUND # will change, but ACCOUNT# will be the same. They are calling this a conversion of share classes.
I do have the option to OPT-OUT of this fee-saving opportunity. Pretty sure this will have NO effect on my on-going SEPP plan, but wanted to CONFIRM with the experts here that this conversion of shares to a new class of shares will NOT BUST my SEPP plan.
Thanks in advance!
Permalink Submitted by Alan Spross on Tue, 2010-10-19 16:24
There is no problem with converting to the Admiral share class. This will not show up in any manner on your 1099R, which does not show investment changes in any case. Moreover, this will not affect your IRA account number either, and even if it did, it would be a non reportable same trustee transfer. So you are several steps removed from having this affect your SEPP in any manner.
More important, be sure you know the exact modification date (termination) of your SEPP plan. In certain cases you have multiple options for how much you can take out in your final stub year before the mod date and not bust your plan.
Permalink Submitted by Anonymous (not verified) on Tue, 2010-10-19 18:13
Thanks Alan for your quick response. I didn’t think there was any problem with the conversion to Admiral shares, and since I had the option to OPT-OUT of the conversion, I needed a SECOND (more knowledgeable) opinion since I’m always second-guessing myself.
Since you mention the modification (termination) date — I’ll get clarification on that as well if you don’t mind.
SEPP Modification Date is 1/15/2011. Plan started 1/13/2006. I will have taken 60 months of payments (this year) on 12/15/2010, and I am over 59.5 years of age. I did change to the MRD method 2 years ago because I didn’t need as much as originally calculated with the Amortization method and like most others my principal was dwindling. I’ve recovered modestly with the lower payout and market rebound. I definitely will not need any money from this account between 1/1/2011 and my modification date of 1/15/2011, so I have already notified Vanguard that my last automatic withdrawal will be on 12/15/2010 (60th monthly payment). Therefore, as for the SEPP Plan, I will take NOTHING before 1/15/2011 and may not need to take anything until 70.5, as I will be starting Social Security in January 2011. The SEPP plan was originally set up to get me through until I could collect early Social Security.
In summary then, SEPP plan will end 1/15/2011. I will take NOTHING before 1/15/2011. After 1/15/2011 and before 70.5, I can take ANY amount; and after 70.5 MUST take at least RMD.
Thanks again
Permalink Submitted by Alan Spross on Tue, 2010-10-19 19:29
Perfect. You have all bases covered. I would recommend retaining your SEPP calculation documentation until 2015, just in case the IRS ever inquires.
If you have been filing a 5329 to change any “1 coded” 1099R forms to the SEPP exception, there is no need to change any “7 coded” 1099R forms received for post 59.5 distributions. The 7 code is technically correct for those, even if you are still in a valid SEPP.