It started in early 2023, when Vanguard posted on my account that I must take $17,000 by 12/31/2023 to satisfy the Requirement Minimum Distribution (RMD) requirement for my Traditional IRA account. In June 2023 I sent a designated Vanguard check to withdraw $11,000 as partial RMD distribution. As Vanguard had set up auto distribution annually in mid December, I called Vanguard on 12/05/2023 to remind them that the auto distribution should be $6,000 and they agreed. However, on 12/18/2023 Vanguard made a mistake and auto distributed $17,000 so the total 2023 RMD distribution became $28,000.
I called Vanguard on 12/26/2023 to point to the Vanguard mistake, and Vanguard rolled back $11,000 the following day, which they called “Indirect Rollover”. However, Vanguard insisted that their 1099-R would show $28,000 in box 1 and 2a, and only Form 5498 available in May 2024 would have the $11,000 rollback. They stated (quote) “Even though an indirect rollover may not be taxable, the transaction is still tax reportable.” They also told me to review the IRS Publication 590-A.
I entered $28,000 on my 1099-R, using 2023 Turbotax Premier for the 2023 tax return. But just to see the difference in tax, I ran a test by changing box 1 and 2a on the 1099-R from $28,000 to $17,000 and Turbotax showed in a heartbeat that the difference would be over $2,500 in federal tax that I had to pay. It did not include CA state tax.
I am confused now. First of all, what is the IRS rationale that “the transaction is still tax reportable”, assuming what Vanguard stated was by the IRS rules? If Vanguard or some other brokerage firms put 28 million in box 1 and 2a on 1099-R, then the taxpayer will have to pay tax for the 28 million? Secondly, in my case, how can the Form 5498 help me to get back that $2,500 tax? I am holding on to my tax return until June as the IRS extended the tax filing deadline to 06/17/2024 for all taxpayers in San Diego County, CA.
And how can I hold Vanguard responsible for their mistake? My Traditional IRA account history shows my $11,000 distribution check in June 2023; Vanguard distributed $17,000 toward RMD on 12/18/2023, and they rolled back $11,000 on 12/26/2023. I also have the Vanguard message regarding my case, where they just stated “Even though an indirect rollover may not be taxable, the transaction is still tax reportable” and mentioned IRS Pub 590-A, then walked away with their mistake scot-free. Will filing a complaint to Vanguard CEO, or to SEC, help to get back my $2,500 overpaid tax?
Thanks.
