Deemed IRAs
(1) For a taxpayer to take IRA RMDs from an employer plan, wouldn’t the employer have had to allow contributions by the employee to a “deemed IRA” provided by the employer plan; (2) wouldn’t the IRA box be checked on the 1099-R reporting a distribution from such deemed IRA; and (3) if the taxpayer had been taking distributions from the employer plan, with no indication from the paperwork that the distribution was from a deemed IRA, wouldn’t he be subject to the 50% excess accumulation penalty for each year this occurred?
Thanks.
Sherry
Permalink Submitted by Al Fry on Sat, 2008-02-02 18:09
The law allows an employee over 70 1/2 that is still working to delay RMDs from that employer’s plan until 4.1 in the year following retirement. The plan itself, does not have to allow this, however. What are the RMD requirements in the instant plan?
Permalink Submitted by [email protected] on Sat, 2008-02-02 20:52
The only employer plan paperwork I have shows the total amount available for withdrawal. My client has been taking his [u][b]IRA[/b][/u] RMDs from this account, which I believe isn’t permissable, as the employer plan paperwork makes no mention of a deemed IRA. Also, the 1099-R does not show to be an IRA. The client has been retired for probably 20 years, and says he has been doing this all along. He has been preparing his own 1040 over these years.
Permalink Submitted by Alan Spross on Sun, 2008-02-03 05:58
You are correct in your assumptions.
This is not likely a deemed IRA, which are quite rare. The rules for deemed IRA distributions are the same as for regular TIRA accounts and any such distribution should have the IRA box checked. Any employer plan statements should certainly reference any deemed IRA sub account of their qualified plan.
If the client has regular TIRA accounts, the RMDs could be aggregated with those of any deemed IRA. Otherwise, it appears he may have been taking RMDs from an employer plan instead of his regular TIRA accounts, and the next step would be to bring his regular IRA RMDs current and file Form 5329 with a request to excuse the excess accumulation penalty.
Permalink Submitted by Al Fry on Sun, 2008-02-03 17:18
Another thought to correct this for the future is to roll the QRP to an IRA, and then you can help him manage the entire portfolio.
Permalink Submitted by Janine Janine on Sun, 2008-02-03 22:00
If the client is over the age of 70 1/2 and he is still working, is he required to take RMD’s from a regular TIRA? Is he required to take RMD’s from the employer plan IRA? Recently I had a discussion about this with a friend, and he seems completely confused about the whole issue.
Permalink Submitted by Alan Spross on Sun, 2008-02-03 22:39
Taxpayer is always required to take RMDs at 70.5 regardless of work status. Delaying to retirement only applies to non IRA employer plans if the plan allows it. In the rare event that a deemed IRA was part of an employer plan, IRA rules still prevail, ie RMDs begin at 70.5.
SEP and SIMPLE IRAs also require RMDs at 70.5 even if taxpayer is still working.