IRA
Fidelity rolled over an IRA to Allianz in January 2012. Fidelity did not do a RMD for 2011 for client. Allianz received the money on January 3th 2012. Allianz said that they WILL NOT do a RMD for the year 2011.
The client has filed their tax return on April 17th 2012 claiming the 2011RMD for him and his wife, based on the values of their accounts that Allianz originally received on January 03, 2012.
There in lies the problem. My name is Ralph S. Adorno. Email is [email protected] Phone is 800 258-7608.
Permalink Submitted by Jose Morales on Wed, 2012-04-18 16:26
The easiest way to “correct” this is to have the client immediately take a distribution for the amount that they should have taken in 2011. You will fill out form 5329 to notify the IRS that the distribution was not taken in 2011 (this is important, do not try to fool the IRS into thinking one was taken when that is not the truth). On form 5329 there are instructions for how to complete the form to notify the IRS of the missed RMD, however in the box where you would note the normal penalty amount you would put “0” then attach to the form a good explanation for why an RMD was not taken in 2011 and show that you have taken steps to correct this oversight by immediately withdrawing the required amount when you discovered the error. The amount taken will be part of their 2012 income, also be sure not to forget to take an RMD for 2012 before the end of the year.
Permalink Submitted by Alan Spross on Wed, 2012-04-18 18:58
I agree.
But be sure that the client’s total RMD was not satisfied by distributions taken from other IRAs he may own. People that transfer IRAs into an annuity IRA often plan to take the total RMD from other IRAs they have. Taking an RMD from the annuity account in certain cases might trigger a surrender charge for the annuity distribution, although the insuror may waive charges up to the RMD requirement.
They also have to amend the 2011 tax return to eliminate any distribution not taken in 2011 and reflected on a 2011 1099R. In any case, the amount of that reported income was not calcaluted correctly since the 2011 RMD will be based on the account values of each owned IRA on 12/31/2010. Those values must be used to determine the amount of the 2011 RMD to be taken in 2012, and the actual value on 12/31/2011 must be used to determine the 2012 RMD which also will be taken in 2012.
Here is another potential problem:
You did not say whether the funds were moved to Allianz by a direct trustee transfer (non reportable) or by indirect rollover. If Fidelity issued a 1099R reporting a distribution in 2011, then the RMD was actually taken in 2011 and instead of an RMD failure the client met his 2011 RMD and made an excess contribution of that RMD to the Allianz IRA. If this occurred, the 2011 tax return would have to report the entire distribution and a rollover of only the amount in excess of the RMD. The RMD amount rolled over would be an excess contribution to be corrected by Allianz with any earnings. Again, as indicated above if the RMD happened to have been satisfied from another IRA of the client, then the entire amount of an indirect rollover to Allianz would be OK and there would be no excess contribution.