RMD included in Transfer to IRA
Last year a client age 78 retired and transferred her PSP to an IRA. My understanding is that once she came out of the PSP, she was subject to a RMD. However, this was not taken and included in the transfer. She has not yet filed her 2014 tax return, and is taking the 2014 RMD this year before the filing extension deadline. Is taking the RMD now considered to be a removal of an excess contribution, or a late RMD subject to the 50% penalty? Accountants I have spoken to were not really sure, so I would really appreciate your opinion on this. Thank you.
Permalink Submitted by Alan - IRA critic on Tue, 2015-07-07 17:26
Since 2014 was an RMD distribution year for the PSP, the rollover will satisfy the RMD however the amount of the plan RMD is not eligible for rollover and therefore becomes an excess IRA contribution. This is corrected in the usual manner and if she filed an extension, the IRA corrective distribution must be completed by 10/15. There will not be a 50% penalty since the RMD was completed, but the IRA earnings on the excess contribution will be taxable in 2014 since that is the year the excess contribution was made. This will not be very costly, but is awkward to file since the RMD amount for the PSP will be reported on line 16b (less any basis) with the rollover amount being the excess over the RMD amount. The IRA corrective distribution is reported on line 15a and 15b. An explanatory statement regarding what happened should be included with the return.