TIRA Distribution
Broker made an error and distributed (RMD) incorrect securities to non IRA brokerage account resulting in an excess RMD.Can broker journal back incorrect securities to IRA and distribute correct securities with no adverse tax consequences
Permalink Submitted by mk foss on Tue, 2008-12-30 02:13
We tend to forget that RMD stands for Required MINIMUM Distribution. There is no maximum. So in this situation, the person will be taxed on the entire amount received even though it’s greater than the RMD. You can’t journal back a dollar amount equal to the RMD.
Within 60 days, the excess amount can be rolled back into an IRA. You can’t rollover an RMD but the excess can be sent back. You must be careful because IRS looks at dollar amounts, not specific securities.It is easiest to replace the excess with cash.
IRA contributions can only be made in cash but rollovers and transfers between plans can be made in property (usually securities). Some custodians will not accept assets that don’t come directly from another IRA or qualified plan so cash may be the only solution.
The only way to get the correct securities out of the IRA is to pay more tax in 2008 or use them for a 2009 RMD later this week.
Permalink Submitted by Alan Spross on Tue, 2008-12-30 03:45
Technically, if cash is used for rolling back the amount in excess of the RMD, it should be the amount of cash derived from selling the securities that were distributed, which of course would result in a different dollar amount than their value at distribution. You cannot just substitute an amount of cash and keep the property (securities).
Shares of the same securities that were distributed can also be rolled back to the IRA, and partial shares would also be OK to equal the amount in excess of the RMD. If there are IRA custodian constraints in accepting shares, it may be easier to sell some of those shares and roll back the cash from the sale.
If you do not want to take your 2009 RMD (no longer required per the recent legislation) and having these particular shares in the taxable account is that important, they can always be re purchased from the sales proceeds of the other shares, but you would incur a sales and purchase commission in most cases.