I thought I’d seen everything, but this one really surprised me!
January means it’s time to compute RMDs based on the 12/31 value. Each year the IRS requires those over 70 1/2 to take a minimum withdrawal from their IRA account. This is called a “Required Minimum Distribution” or “RMD”. IRS rules require that the first dollars taken out of an account for any reason be the RMD. The amount required differs depending on your age.
While computing values for RMDs, one of managers found a discrepancy. The ending value at the broker (Schwab in this case) was $30 higher than the end of year value in PortfolioCenter. This discrepancy resulted in Schwab computing a larger RMD than my manager. It was the only account where RMDs and the end of year values of Schwab and PortfolioCenter differed.
After much research, we traced the problem to a trade placed on 12/31/2014. The trade had a $30 fee. Schwab posted the buy on 12/31/2014, but the trade did not “settle” until 01/02/2015. They put the $30 fee on the settlement date in 2015.
In 20+ years of working with PortfolioCenter, I have never seen a broker put their fee in a different tax year than the trade itself.
When I called Schwab for clarification, Schwab said it should always be this way. They explained that the funds pull when the trades settle. Hence the end of year value in Portfolio Center will be different from the Schwab end of year value. Who knew?
For future reference it might be a good idea to avoid placing trades on 12/31 in IRAs subject to RMDs. It would make life easier for everyone.