RMD based upon what amount?
Client just retired. Rolling over both a 401k and the lump sum option from a DB plan. She wants to take her RMD now, for 2013. Since the 2012 FYE balance was only the 401k balance (no account balance with DB plan), am I correct in saying that for 2013 only the RMD is based upon the 401k balance only?
Permalink Submitted by Alan - IRA critic on Wed, 2013-04-17 20:42
Permalink Submitted by Richard Stumpf on Wed, 2013-04-17 22:52
They did not offer her an RMD option. So the entire amount was rolled over. Should we just do the RMD at this point to correct?
Permalink Submitted by Alan - IRA critic on Wed, 2013-04-17 23:08
Technically, the RMD has actually been distributed in this situation, and then rolled over to the IRA so the IRA has an excess contribution to be corrected in the usual manner. The IRS is unlikely to catch this, but if they do there is no statute of limitations with respect to excess IRA contributions, so the risk is a 6% excess contribution penalty for each year plus interest on the penalty. At this time, the reporting is more of a hassle than the cost. Client would report the direct rollover of the DB plan on 16a with rollover next to 16b, but with the amount of the RMD in 16b which will be taxable. The removal of the excess regular contribution in the amount of the RMD from the IRA will only be taxable to the extent there are earnings on the excess amount while in the IRA. That would be reported on 15a and 15b. However, since there is no 5498 showing a regular IRA contribution, the IRS might not understand what happened without an explanatory statement with the tax return.
Permalink Submitted by Richard Stumpf on Thu, 2013-04-18 15:43
Let me add one other piece of clarifying data. Client turns 70 in June, 2013, so will turn both 70 and 70.5 this year. Client was not required to take an RMD this year, could wait until next year, but wants to take it this year instead of doubling up next year.So rolling this over without having taken the RMD first shouldn’t be an issue, and if we take the distribution now, shouldnt we be OK?
Permalink Submitted by Alan - IRA critic on Thu, 2013-04-18 19:00
No, that would not be OK. 2013 is still a disrtibution year for the client. While they can defer the RMD, then cannot do a direct rollover and defer it because a direct rollover is composed of a distribution followed by a rollover. Since 2013 is an RMD distribution year and the first distribution is deemed to include the RMD, there cannot be a direct rollover in 2013 without dealing with the RMD. For the same reason, if the direct rollover was postponed till next year and no RMD taken this year, then both 2013 and 2014 RMDs would have to be taken prior to the direct rollover. These same rules apply separately to the 401k and DB plan lump sums, except that the prior year end balance for the DB plan is considered to be the lump sum calculation done this year.