Reversal of RMD
Early in 2016 the RMD was taken on a 401K plan. The owner of the 401K turns 70.5 in late 2016, but now wants to take the RMD in early 2017 prior to April, then take the 2017 RMD in late 2017. His income in 2016 will exceed the limit and will result in future increases in Medicare premiums. This can be avoided if his RMD taken in early 2016 can be reversed. Is this possible?
Permalink Submitted by Ben Meyer on Mon, 2016-08-15 15:33
If the check has not yet been cashed, a custodian or recordkeeper may permit the check to be returned and nullify the transaction on the theory that the funds never left the account. But this would require an especially helpful and accommodating institution.
Permalink Submitted by Alan - IRA critic on Mon, 2016-08-15 15:33
No, it is not possible since an RMD distribution cannot be rolled over. An exception to that could have applied if he is still working through the end of 2016 and not a 5% owner but the plan required everyone to start RMDs at 70.5. That would have been a plan RMD but not a statutory RMD and could have been rolled over within 60 days of distribution. However, even if that situation applied here the 60 days has apparently passed.
Permalink Submitted by Alan - IRA critic on Mon, 2016-08-15 15:50
Benn’s suggestion may be worth a try, but chances are very slim that it would work. In PLR 2004-42035 the IRS decided that the distribution occurred when the check was mailed. So even if the plan were to accept a returned check, a letter ruling waiving the 60 day rollover period would be required. Of course, if the plan did not issue a 1099R the IRS would not be aware that a distribution was made.