Failure to Take RMD before ROTH Conversion
My father has 2 accounts at Vanguard. He asked them to convert one of the accounts, but they forgot to take the RMD before the conversion. The question is, what to do now?
I’m not sure if it makes a difference, but the Vanguard computers only picked up the money market portion of the conversion, but not the brokerage portion. However, the money market is only 1/100th of the amount that he is supposed to withdraw.
Vanguard wants to re-characterize the account, but then he won’t to do a conversion this year. They also suggested treating Money Market as a return of excess of distribution, which would allow them to take the RMD from the other IRA. This doesn’t make sense to me.
Do possible options include:
1) taking a distribution from his other IRA to fulfill the RMD requirement?
2) dividing the other IRA and do something with that?
Thanks.
Permalink Submitted by Alan Spross on Mon, 2010-11-01 21:27
Sounds like the problem relates to Vanguard’s rather confusing account platform, where a brokerage account must have a separate IRA to hold the MM sweep fund because the MM fund is a mutual fund and Vanguard cannot put their own mutual funds in their brokerage accounts.
The best course of action now is to treat the converted amount as an excess regular contribution and distribute it with any allocated earnings. Then, remove the rest of the RMD from the brokerage account. The original converted amount counts as part of the RMD. The RMD is now totally satisfied. Then convert the amount that is desired from what is left in the brokerage account.
Note that no recharacterization has been done and therefore there is no restriction on more conversions. There is no reason to recharacterize the conversion since there is no benefit in moving the funds back to a TIRA when they are not eligible to be in any IRA since the original distribution was deemed to be credited against the RMD.