403B RMD after rolling over to IRA
I have a client who turned 73 in April 2024. She had a 403B for years and rolled it over to an IRA in February 2024. If she took an RMD on her 403B prior to rolling it over to the IRA I assume there’s no additional RMD required for 2024.
However, if no RMD was taken from the 403B prior to rolling it over to an IRA do we just use the valuation of the 403B as of 12/31/2023 to calculate the RMD on the new IRA?
Permalink Submitted by Alan - IRA critic on Tue, 2024-06-04 18:17
Not exactly.
Assuming that the client had retired prior to 2024, if the 2024 RMD was not distributed prior to the direct rollover, the RMD is still treated as completed, but because RMDs are not eligible for rollover, the RMD amount must be treated as an excess IRA contribution and removed with applicable gain or loss.
There is no IRA RMD for 2024, just the 403b RMD. While not costly tax wise, reporting can be a hassle because the RMD portion of the 1099R must be reported as a taxable distribution on lines 5a and 5b of Form 1040. There will also be the removal of the excess contribution from the IRA which will generate a 1099R from the IRA, but only the amount of gain (Box 2a) will be taxable.
Of course, the plan should have distributed the RMD separately from the direct rollover, and that would avoid an excess IRA contribution.