I messed up.
I made the mistake of taking my first distribution electronically from Vanguard. I sold all the shares of one fund and then enough of another fund to add up to $24,466. I checked and double checked these figures.
When I checked my bank account this morning my deposit was for $26,702, or $236 over. I went back on-line and checked at Vanguard and this is what there records show also. There is no record of my original request, only a confirmation from them showing their
figures (which I should have checked earlier).
I suspect the value of the fund I sold all of increased by $236 between the time I placed the sell order (when the market wasn’t open) and it was executed.
I have learned my lesson and am passing it on. I should have done all this verbally over the phone to prevent this kind of error, and if I wasn’t going to do that I should have specified a dollar amount instead of using ‘sell all’.
My question is am I going to have to pay a penalty on the whole amount or just the overage. Either way, how do I proceed?
Please note I thought of just rolling over the extra amount but I rolled over money from Vanguard last November so I would run into the 1-year rule.
My other thought is trying to apply the extra money towards another exclusion — pay $236 towards a family member’s education or something.
If I just have to pay a penalty on the $236 then I will probably just take it as a lesson learned and pay the penalty, but if it is more then need to try and find a way out.
2011-10-20 11:14, By: Rory, IP: [188.8.131.52]
Another possibility for the excess $236… Vanguard only allows selling shares as whole numbers. If you had partial shares (for example from re-investing dividends) and you sold off 100% of the whole shares then they would also have liquidated the partial
shares – this is explained on their website.
If you are sure that a 2nd rollover is out and Vanguard won’t take the funds back, then baring any other action you have effectively busted your plan and will owe a 10% penalty on the full $26,702.
If you can find another exemption, then you may be able to use it, but no guarantees. Make sure that if you are trying to use another exemption, that you fully understand the other exemption and be prepared to get a possible notice from the IRS – make sure
that you have the documentation to prove your case. The one negative if you do get questioned will probably behow you arrived at needing an additional $236.
2011-10-20 16:31, By: Gfw, IP: [184.108.40.206]
It is possible that you might not have a problem. Is the $ 26,702 that is showing in the SEPP 72-T IRA account as the cash balance ? If so, then there is no problem that they sold more than you needed.
However, if this amount was distributed and deposited into your non-SEPP 72-T checking account, which it sounds like it might be the situation, then you are correct.
Vanguard might agree that they are allowed to reverse the excess $ 236 of this transaction, but they have to abide by regulations. You cannot do it yourself because making any contributions to a SEPP 72-T will automatically bust the plan.
I suggest that you try to speak with a manager or supervisor. They may be able to help, but it is beyond the authority for their reps on the phone.
2011-10-20 17:49, By: dlzallestaxes, IP: [220.127.116.11]
Another potential solution – you did not say what date you received the 26,702, but if it was very recently, there is an easy solution.
You indicated that the prior rollover from this IRA account was in Nov, 2010. The one year rollover limit applies from the date of the Distribution of that rollover, not the date you rolled it over. So assume that this distribution
last year was on 11/1/2010. You cannot do another rollover from this IRA until 11/1/2011. That means that if you received your current distribution after Sept 2nd, 2011 you can still roll it back within 60 days from the date you received it as long as that
60 days falls AFTER 12 months from the 2010 distribution that you rolled over then.
Check it out. And it MUST go back to the same IRA for purposes of salvaging your plan (cannot go to a different IRA account). And if this works, you are then locked out for another 12 months for rollovers, so be extra careful.
2011-10-20 21:31, By: Alan S., IP: [18.104.22.168]
ALL: Please note a typo in my original post. My 72t calculation was $26,466
I received the money directly deposited into my bank account yesterday, October 20th.
My rollover last year was on November 10th. [For the record, most of it went into a Scottrade account and part of it was a qualified distribution (education expenses)].
So you are saying if I put $236 back into Vanguard (and not to Scottrade) November 11th it will be OK?
If so, would I be better or worse of trying to talk to a Supervisor at Vanguard to explain the situation and see if they would ‘take back’ the $236?
2011-10-21 12:13, By: Rory, IP: [22.214.171.124]
There is no reason that Vanguard should not accept your $236 back as a rollover, although if they have the account flagged as a SEPP they might think that this violates SEPP rules. It doesn’t, because the amount you are rolling
back is not a SEPP distribution, it is the amount that exceeds your SEPP distribution.
With respect to the 12 month waiting period, it is measured from the date of your prior distribution in 2010, but if 11/10 was the date you COMPLETED the rollover, then your distribution was prior to that. Therefore the one year
period has to expire no later than 11/10/2011, so you can roll the $236 back after 11/10 but no later than 12/19 which is 60 days from the date you received the recent distribution. Then you are locked out of another such rollover until 10/20/2012 which is
12 months later than your distribution yesterday.
No reason this should not work. If Vanguard hesitates, ask to talk to their specialist in SEPP plans.
2011-10-21 15:56, By: Alan S., IP: [126.96.36.199]
I am preparing to return the $236.29 this week since it has been over a year now since my last rollover and still within 60 days of the distribution date. I understand I may not make any more rollovers from this account until a year after the effective date
of this rollover (back into Vanguard).
I just want to make sure everything is clear to me. When you say the rollover must go back into the same IRA I assume you are speaking of Vanguard as a whole (as opposed to Scottrade) and that the money does not have to go back into the same funds it came
Secondly, I did not mention earlier but Vanguard made two seperate deposits to my account because I sold off to different funds, both on October 20th, one for $5028.79 and the other for $21,673.50 which resulted in 26702.29, $236.29 over my actual calculated
amount of $26466. I assume that is immaterial but just want to check everything out as I only have one more shot to make this all right.
Thank you — Rory
2011-11-13 20:04, By: Rory, IP: [188.8.131.52]
Rory, I have had two different SEPP plans running at same time. The withdrawals have always come from the CASH accounts, and match the amount I requested. It is very dangerous to sell a fund or stock and ask for it (the proceeds) to be sent to you as
a SEPP payment, hoping that when itsettles the amount will be exactly what you want. Have sale proceeds put in yourIRA cash or money market account, and thenplace the withdrawal order to have a specific amount sent to you from the Cash account.The other
point is that your example of the total thatyou wanted and the total that you received is actually
$2,000 more than the overage of $236?(I can’t see your post right now) that you listed in your post,so check those figures again. Sorry that I don’t have any suggestions to fix this. KEN
2011-10-21 03:45, By: Ken, IP: [184.108.40.206]
I agree with the advice given on this. Ken is correct. Your example shows a $2236 excess distribution and not one of $236. He is also correct in stating that a request for distributions should come from a money market or cash fund and not a typical mutual
fund. Unlike stocks and ETFs that can be bought and sold at any time of the business day, mutual funds are only valued for buying and selling once a day; typically at the close of business at 4 PM New York time. Also, if you watch the closing value of the
market, it tends to fluctuate a bit for a minute or two after the close as the end of day trades are tallied. All of this make it virtually impossible to sell the correct number of shares to get a specific amount of money distributed to you.
I also agree with Alan that a rollover of the excess amount distributed to you back into your IRA is likely to be the best way to resolve this issue. Checking the exact dates to make sure that a rollover is possible and then working with a Vanguard supervisor
is probably your best chance of avoiding a busted SEPP plan. Note that if this does work for you, you will not be allowed another rollover on this account for 12 months from the rollover date. Any problems that occur within that time frame cannot be resolved
via doing another rollover, as only 1 rollover per account per 12 month period is allowed. Because of this, you will want to be extra careful to make sure that only the exact amount calculated in your SEPP plan is distributed to you.
2011-10-21 04:58, By: Ed_B, IP: [220.127.116.11]
Thanks again to everyone for their advice. I contacted a financial advisor with knowledge of 72t’s just to be sure and she confirmed everything you all have said. I then spoke to Vanguard and have everything set up to return the excess distribution. I will
be mailing them a check this week.
I have a question which feels silly but I know enough now to know there aren’t any silly questions on this subject. My excess distribution was actually $236.29. I assume that the IRS rounds to whole dollars on this like they do with everything else. Is it
better for me to return the 29 cents also or just the $236. I am thinking I should include the spare change so that my account will then show a whole number for the distribution for the year.
Any advice on this would be greatly appreciated.
2011-11-12 19:45, By: Rory, IP: [18.104.22.168]
2011-11-12 19:51, By: Gfw, IP: [22.214.171.124]
While IRS probably won’t care, why take any chance for $ .29 ?
2011-11-12 19:53, By: dlzallestaxes, IP: [126.96.36.199]
Exactly! That $0.29 seems insignificant and it probably is. On the other hand, a $0.29 addition to your SEPP IRA could be just as significant to an IRS agent as the entire amount in question here. I can’t think of anything else that could buy as much
peace of mind in this case as that same $0.29. I would return the entire amount and consider myself very lucky to have made it through this potential disaster unscathed.
2011-11-12 20:14, By: Ed_B, IP: [188.8.131.52]