QCD amount less than RMD amount – issues ?

Submitted by Steve Jefferys on Fri, 2018-12-21 22:06

Client has a $15,000 IRA that they need to take an RMD for in 2018. My calculation shows the RMD for 2018 is $593. The plan administrator sent $550 to the charity. No taxes were taken out.

What issues will the client face if they do not take the remaining RMD due – $43 by the end of the year?

The client is planning on moving the IRA money back to their 403b or transfer to a new IRA in 2019.



Submitted by David Mertz on Fri, 2018-12-21 22:42

  • If this is the client reached age 70½ in 2018, the client has until April 1, 2019 to take the remainder of the RMD for 2018.
  • The client must complete the any RMD before rolling any amount from the IRA to a 403(b) because such a rollover involves a distribution from the IRA, distributions from the IRA are RMD until the entire RMD is satisfied, and RMDs are not eligible for rollover.
  • The client cannot do a distribution and rollover to move the IRA before the RMD is satisfied for the same reason as rolling over to a 403(b).  The client can do a trustee-to-trustee transfer from the IRA to a new IRA of the same type since a trustee-to-trustee transfer is neither a distribution nor a rollover, but the RMD will still have to be satisfied from the new IRA or any of the client’s other IRAs.
  • If the client reached age 70½ before 2018, the deadline for completing the 2018 RMD is December 31, 2018.  If the RMD is completed late, the client will need to file Form 5329 requesting a waiver of the 50% excess accumulation penalty for reasonable cause.

Submitted by Steve Jefferys on Sat, 2018-12-22 19:10

The client was 72 last year.What is the penalty if the client did not take the remaining RMD this year or next year and next year moved the money in the IRA to their current 403b? 

Submitted by Alan - IRA critic on Sat, 2018-12-22 19:39

  • That would major problems. For starters, a rollover to the 403b is deemed a distribution so will automatically include RMDs including the current year. More significantly, rolling RMD money into the 403b is not allowed and would have to be distributed back out of the 403b with allocated earnings. Client would have to report the IRA 1099R RMDs as income on the 2019 tax return, then would get another 1099R from the 403b for the returned excess that would also have to be reported. 
  • To prevent this mess, the remaining RMD should be taken before year end. If it is not, a 5329 will have to filed to request the penalty waiver (50% of 43) or client could pay it. Then take out the 2019 IRA RMD before rolling the rest over to the 403b. This will eliminate IRA RMDs starting in 2020, meaning this strategy is only worthwhile if client plans to work into 2021. And given that the IRA balance is so small, it is probably not worth the effort to roll it into the 403b.

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