First RMD Year – Straddle Distributions over Two Tax Years
I have a client who turned 70 1/2 in 2014, so his first-year RMD doesn’t technically need to be taken until April 1, 2015. He took $53,000 of a total $59,000 RMD in 2014, and would like to take an additional $6,000 distribution in 2015 but have it count towards his 2014 RMD.
The client’s custodian has informed us that they can’t code any partial distributions as being taken in the prior year, but that had he waited until 2015 to take the entire amount they could have coded any distribution as being for 2014.
I haven’t been able to find any definitive proof that someone can or can’t straddle two tax years for their first year RMD…can someone point me in the right direction?
Many thanks,
Ben
Permalink Submitted by Jose Morales on Thu, 2015-01-15 17:25
There is no back dating of distributions and no distribution code for a “prior year distribution.” Any distributions taken in 2015 must be reported in 2015, even if they are to satisfy a delayed first mandatory distribution amount. There is no problem with taking part of the 2014 distribution in 2014 and the remainder in 2015 (before April 1st). The amount taken in 2014 would be reported as part of the client’s 2014 income and any amount taken in 2015 is reported as part of the client’s 2015 income.
Permalink Submitted by Ben Birken on Thu, 2015-01-15 18:07
Thank you, Urusei2. I should have been more clear: the client isn’t trying to have the income from the remainder of his 2014 distribution show up on his 2014 tax return. He recognizes that the income will be reportable in 2015.What he doesn’t want is a penalty letter from the IRS for not taking his full distribution. He wanted the distribution to somehow by coded so that it was somehow known that the remaining distribution for 2014 that was taken in 2015 should be alloted against the 2014 RMD amount.The client’s custodian said their only suggestion was to file Form 5498 and an accompnaying appeal with the client’s tax return. This seems unnecessary to me.
Permalink Submitted by Jose Morales on Thu, 2015-01-15 18:46
There is no way to code a distribution in that way, and it is not necessary. The suggestion by the custodian is not necessary either. The IRS is well aware that the first required distribution does not have to be taken in full until April 1st of the following year. There is no special coding for distributions that represent the required distribution amount. They are all coded with Distribution Code 7, normal distribution, once the client reaches the age of 59 1/2.
Permalink Submitted by tomd37 on Thu, 2015-01-15 18:30
As you indicated, his required beginning date (RBD) is April 1, 2015 and he must take all his 2014 RMD by that date. He can opt, as he has, to take some in 2014 and the remainder of the 2014 distribution by April 1, 2015. As indicated he will get a 1099-R form for whatever tax year(s) the distribution was actually made. All the IRS is concerned about is that all his 2014 RMD is taken by April 1, 2015.
Permalink Submitted by Alan - IRA critic on Thu, 2015-01-15 18:41
Tom is correct. All client needs to do is simply take out 6,000 by 4/1/2015, then take his entire 2015 RMD by 12/31/2015. Custodians do not report distributions to be FOR any particular year, they just report the total distribution taken in each calendar year. The IRS does not require any special tax reporting either. The taxpayer just reports all distributions taken in each calendar year on the tax return in accord with the 1099R. The one thing the taxpayer should do is retain a copy of the statement showing the 6,000 distribution and the date the distribution was taken. just in case the IRS ever asks.