RMDs for Spouse
A spouse who is retired has a 403B account and an IRA. Her date of birth is 2/24/38 so she turns 70 1/2 this year. Her spouse died on 12/23/07 and his date of birth was 11/12/37 so he would have turned 70 1/2 this year. He had an IRA.
Is she permitted to rollover her 403B account to her IRA this year and then take her RMD from the IRA since technically her RBD is not until 4/1/09 so she would technically be not rolling over her required distribution? If so, how is her RMD calculated? Does she take the 12/31/07 closing balance of her 403b and IRA and take the full RMD from her IRA?
How does she handle the RMD from the portion of the IRA that was the deceased spouses IRA since she rolled it into her own IRA earlier this year, which is the year they both turned 70 1/2?
Thank you!
Permalink Submitted by Alan Spross on Tue, 2008-11-18 21:28
Rollovers in the exact year when RMDs begin are the most confusing with respect to RMD handling.
With respect to the 403b, even though the RBD is not until next year, 2008 is still an RMD distribution year, and a rollover to an IRA will require the 403b plan to hold back the 2008 RMD. This late in the year, they may just issue it in a distribution check because it is not eligible for rollover because it is an RMD. Any distribution done this year is deemed to include the RMD. Therefore, the 12/31/07 balance for both the 403b and the IRA will determine their respective RMDs. The IRA RMD can still be deferred to next year if desired.
For the inherited IRA that she rolled over in the year following her husband’s death, she is deemed to be the owner all year. Therefore, the 12/31/07 balance of that IRA must be added to the 12/31/07 balance for her IRA to determine her IRA RMD for 2008.
Permalink Submitted by Jonathan Sard on Tue, 2008-11-18 22:31
So if she already rolled over her 403B into her IRA without taking the RMD, this would be treated as an excess contribution since she was not permitted to rollover her RMD?
Permalink Submitted by Alan Spross on Tue, 2008-11-18 22:56
Correct. The 403b administrator should have known this and not rolled over the full balance.
This is not a serious problem. You are correct that the correction is not difficult. The amount of the RMD should be reported to the IRA custodian as an excess contribution and removed with any earnings allocation, which may well be negative if the IRA held stock based holdings. The taxable income would be the amount of the 403b RMD, not reduced by any negative earnings and reported on line 16 of Form 1040. If earnings were positive, then they too would be taxable.
For the corrective distribution, the facts would have to be provided to the IRA custodian so that they would code it as a corrective distribution of an excess contribution.
Before doing any of this, better check to be sure that the 403b did in fact transfer the entire balance to the IRA.
Permalink Submitted by charles lore on Wed, 2008-11-19 00:59
Just want to be clear on this. Do 403b, 401s and p/s plans have the same April 1 RBD rules as ira’s? If they do I would have thought you could roll to an ira before rmd came out as long as 2008’s rmd came out or ira by April 1 ,2009.
Permalink Submitted by Alan Spross on Wed, 2008-11-19 03:43
Chuck,
Yes, the RBD dates are the same.
But any distribution in an RMD distribution year (year of retirement if over 70.5, or 70.5 if not working) is deemed to be applied to the RMD. So any rollover to an IRA would be rolling over the RMD unless the RMD was distributed first.
This also holds true for Roth conversions. You cannot convert to a Roth before you take your RMD if you wait until you are 70.5. If you still want to convert in that year, then you must take out the RMD first and cannot wait for the RBD.
It is important to contrast the treatment of an account owner doing a rollover in an RMD year prior to RBD vrs the treatment of the beneficiary if the owner passes prior to his RBD. The beneficiary is NOT forced to take an RMD for the year of death and can transfer the account, even though the owner would have had to if he wanted to roll over the account.
Permalink Submitted by Jonathan Sard on Wed, 2008-11-19 13:34
Alan,
Thank you for your thoughtful replies. Two last questions. If the person who rolled over her 403B to her IRA this year has another 403B still titled to the 403B, can she satisfy her RMD by taking it out of the 403B that still remains? Also, how does the IRS ever know if a person is in fact rolling over a RMD as long as one is taken by 12/31 since the custodian’s don’t report the actual day of the distribution?
Permalink Submitted by Alan Spross on Wed, 2008-11-19 17:16
RMDs for 403b plans of the same employee can be aggregated in the same fashion as IRAs, but that RMD still needs to be taken prior to a rollover. Taking the full RMD now from the remaining plan would not solve that technical problem caused by the rollover being done first.
Good question about the date disclosure. For employer plans, the responsiblity for knowing the requirements rests primarily on the employer, as there are no 5498 forms requiring account balances as of year end to be reported. In this case, the IRS would only know about the timing if they specifically inquired, did an audit etc. There is little evidence of the IRS actively enforcing the timing issue in this type of case.
If the full RMD is taken from the remaining 403b, chances are no questions would be asked. However, the risk is that if this does become an issue for some reason, a corrective distribution from the IRA would be required, and it would be too late to roll over the extra distribution. There would effectively be 3 RMDs taken plus any income earned on the IRA excess contribution.