RMDs on FAA Modernization Act of 2012 IRAs
Trying to get an answer for those airline employees that were allowed to roll airline payments that came about due to bankruptcy, into traditional IRAs this year (under section 1106 of the act). Would there be an RMD for this year even thought the IRA did not exist on 31 December 2011? The act allowed employees to roll a percentage of the payouts from the mid 2000’s airline bankruptcies into an IRA and file an amended return for those years thus recovering the taxes that were paid. The confusion comes about because the IRA was created from monies in earlier years, but did not actually exist until this year…..
The IRS will get its due in any case next year and it may be a good idea to take a distribution under known tax rates this year.
thanks
Kevin
Permalink Submitted by Alan Spross on Fri, 2012-11-30 18:22
Sec 1106 provides for either current rollovers to a TIRA OR delayed recharacterization of Roth rollovers previously done.
In your case, it sounds like the employee elected the Roth rollover and reported conversion income in a prior year, and now opts to recharacterize that conversion, amend the past return and receive a tax refund. In that case, the recharacterization would not trigger a TIRA RMD for 2012 because the TIRA did not have a 12/31/2011 balance.
Whether the original rollover to the Roth properly handled any plan RMD that was due for the year of the original rollover is another question.
Whether an employee should take a voluntary TIRA distribution after recharacterizing a Roth rollover suggests a decision on whether their taxable income is high enough to expose them to immediate increase in tax rates, reduced deductions, higher medicare premiums etc vrs their taxable income situation in 2012. Just a general voluntary taxable distribution that is not required due to concern with potential higher tax rates is probably unwarranted. Perhaps a small distribution could be considered, one that would not increase the 2012 marginal rate.