RMD Distributions

Submitted by Mark Bunker on Wed, 2016-12-14 19:41

My client retired in late 2015. He had a 403B which he rolled into an IRA in January 2016.
He turned 70 1/2 in fall of 2016.
Since 403B withdrawals cannot be combined with traditional IRA’s, where is he obligated to make his RMD for the previous 403B dollars? He does not have a 403B any longer.

If the answer is an IRA, can it be any IRA or must it be the specific IRA where he rolled the 403B?



Submitted by Alan - IRA critic on Wed, 2016-12-14 20:32

  • The 403b plan should NOT have included the 2016 RMD in the IRA rollover, they should have issued a separate RMD check to him at the time of the IRA rollover. They knew that he had retired. At this point client should check his 1099R forms to be received next month. The 403b plan should issue one for the RMD amount coded 7 and another for the rest of the rollover coded G. It should be reported in this manner on his tax return, showing a taxable distribution on line 16b along with the IRA rollover. Technically then, his 403b RMD was completed in January 2016 and the first IRA RMD will not be due until the end of 2017.
  • However, all this money is now in the IRA instead of just the allowed rollover amount. He has an excess IRA contribution in the amount of the RMD and the IRA custodian should be asked to treat the RMD amount as an excess regular IRA contribution. They would distribute this amount to him along with allocated earnings on it. The earnings will be taxable on his 2016 return, the year in which the excess contribution was made.
  • Note that this is not expensive because the taxable amount will be the same as it would have been except for the amount of earnings. It might be too late to have the corrective distribution made from the IRA this year, but in order to get a 1099R in January, rather than Jan, 2018 is worth the effort.
  • Some IRA custodians may have a problem understanding this, so hopefully client is with an major firm. Remember, he cannot just ask the IRA custodian to distribute the plan RMD money, he must ask for the distribution to be treated and coded as an excess regular IRA contribution. Finally, the corrective distribution must be taken from the IRA account that received the 403b rollover. Before  asking for the corrective distribution, the client should make sure that he did not receive the 403b RMD in January and just forgot about it.

Submitted by [email protected] on Mon, 2017-02-27 18:27

I have a similar situation where a client moved a TIAA 403(b) and TIAA Retirement Plan to a Traditonal IRA in 2017.  He turned 70 this January 2017 and his 70.5 is July 2017. Does the RMD still need to be considered out of the 403b and Retirement Plan as noted in the earlier comments?  If so, I understand the actual RMD amounts that should have been taken from the 403b and retirement plans must be withdrawn from the IRA in the same manner as an excess IRA contribution.  The Traditional IRA RMD calculations allow for a joint life expectancy calculation if the spouse is more than 10 years younger that the IRA owner (which is the case for this person).  Do 403b and retirement plans allow the use of the joint life expectancy tables when calculating RMD’s?    

Submitted by Alan - IRA critic on Mon, 2017-02-27 19:32

Is he retired from the employer?  If so, the plans should have distributed the RMDs and not included them in the direct rollovers. The joint life and survivor tables do apply per IRS rules, but it is also possible that the plan will not recognize them and use the Uniform Table. The TSP does that. In addition, the 12/31/1986 balance, if any, is not subject to RMDs until age 75, so the plan will have to provide the correct RMD amount in order to know how much of an excess contribution was made into the IRA. Further, if the plan does not recognize the joint life table, the additional amount distributed is a PLAN RMD, and not a statutory RMD and that difference can be rolled over to the IRA, meaning that this portion was not an excess contribution. Finally, I am not sure of the nature of the “TIIA Retirement Plan”, ie which type of plan it is.

Submitted by [email protected] on Mon, 2017-02-27 20:39

Yes, he has been retired for several years.  He had three plans at TIAA and one of the three (the 457b) distributed a RMD based on the standard Uniform Lifetime Table.  There was an after tax annuity that has been annuitized.  All other money appears to be pre-tax.  The “Retirement Plan” is from a college and does not appear to have any reference like 457b or 403b.  Would it be permissible to simply use the Uniform Lifetime Table for the “retirement plan” and 403b 12/31/2016 values to calculate the RMD amounts and then withdraw the funds from the current custodian using the excess IRA contribution method?   

Submitted by Alan - IRA critic on Mon, 2017-02-27 21:28

  • Separating by the plan – 457b did distribute the RMD, but did not use joint table. If the distribution was received less than 60 days ago, he could roll over the difference if he wanted to. Otherwise, the distribution will remain as is.
  • 403b can aggregate RMDs over other such plans, but this is very difficult to manage. The 403b RMD for 2017 would not include any balance that the plan tracked as existing on 12/31/1986, so that could reduce the excess IRA contribution from the rollover if this amount can be identified. There is no authority to treat an amount as excess if it isn’t. Removing the excess from the IRA is not expensive, but is miserable to report because the tax return will be deviating from the 1099R form from the plan. For example, the direct rollover would only report the amount eligible for rollover with the plan RMD showing as taxable. An explanatory statement would have to be included with the return for the IRS to understand the change in reporting from the 1099R from the plan. As for the IRA removal of the actual excess with earnings, the situation would have to be explained to the IRA custodian to get them to do the distribution and code the IRA 1099R correctly to avoid double taxation, since the RMD amount will be taxed on line 16b of Form 1040. The IRA distribution should only show the earnings as taxable and Box 7 code should indicate code 8. While not technically correct, if you want to use the Uniform Table for the 403b and 12/31/2016 balance, you would never be questioned by the IRS, but that would increase the amount of the excess contribution to the IRA from the rollover.
  • Not sure about the after tax annuity and if it is even subject to RMDs. If not, then no IRA excess. You would have to call TIIA to see if that plan is tax qualified and subject to RMDs.

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