Vanguard missed an automatic RMD

Submitted by Kay Barden on Wed, 2024-01-10 22:24

I have a Vanguard Inherited IRA (brokerage) which I had set up to do automatic RMDs for 2023. Quarterly in Feb, May, August, and November. They properly took out the first three for 2023, but failed to take out the November distribution. I didn’t notice it until today and I’m furious. (On top of everything else objectionable about Vanguard, they made me go paperless in order to avoid another fee, which makes everything harder to keep track of.) Vanguard has someone looking into it to determine if it’s Vanguard’s fault. Can they retroactively correct this so I don’t have to file extra paperwork with the IRS (which will make my accountant’s charge go up)?



Submitted by Alan - IRA critic on Wed, 2024-01-10 22:53

  • It’s very irritating, but they can’t make a retroactive distribution whether it is fully their fault or not. For people who understand how to calculate and request IRA distributions, these “services” are best avoided because they present a risk of failure in exchange for the convenience. The IRA owner must still check to be sure that each distribution was actually made.
  • While you can easily get the penalty waived by filing Form 5329 after the delinquency has been made up, there is no simple solution that your taxable income will be lower in 2023, but higher in 2024 because the made up shortfall will be taxable in 2024 as well as your entire 2024 RMD. The net result could well be an increase in the combined tax liability for both years. 
  • Your accountant should not be upcharging for the additional 3 minutes to file a 5329 with a “reasonable explanation” statement for the waiver. Suggest you make up the shortfall soon so the 5329 can be added to your 2023 return, which would avoid a 1040X/5329.

Submitted by Kay Barden on Thu, 2024-01-11 01:11

Thank you. So just to be clear: I should withdraw the equivalent $$ of the Nov. 2023 distribution asap – if I don’t do so before April 15 I’ll have to file an amended return later in the year?  Either way I have to file the 5329?

Submitted by Alan - IRA critic on Thu, 2024-01-11 01:42

Yes, you should take the missed distribution soon. You can then file the 5329 with your 2023 return, which eliminates the need to file a 1040X with the 5329. If you otherwise need to file an extension for your 2023 return, you could also include the 5329 with the 1040 filed on extension. Either way, the 5329 is required to get the penalty waived and you must have taken the distribution before you can file the 5329 requesting the penalty waiver. 

Submitted by Kay Barden on Thu, 2024-01-11 01:27

Follow-up: I will most likely move this account to Fidelity as Vanguard is so unsatisfactory. Does it make any difference whether I take the account’s 2024 RMDs from the account once it’s at Fidelity, or can I split them between Vanguard and Fidelity?

Submitted by Alan - IRA critic on Thu, 2024-01-11 01:46

You can split the 2024 RMDs between the current and future IRA custodians, or take the total RMD before or after the transfer anytime in 2024. Be sure to move the inherited IRA only by direct transfer. Do not take a distribution with the intent to do a rollover, because you cannot roll over any distribution from an inherited IRA. If you take all these distributions either before or after the transfer, you will have only one 1099R to deal with.

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