Calculating the RMD amount
Came across an interesting story involving a method of greatly reducing one’s RMD, but I have a hard time believing it would actually work, and couldn’t find anything on an internet search, so thought I might ask here.
Let’s say an individual is turning 73 next (2025) year and so has a Uniform Table life expectancy of 26.5 years. This person’s TIRA balance as of Dec 15 of this year is $1,000,000 and assuming that would be the balance as of close of business Dec 31, this person’s RMD for 2025 would be $37,736. But let’s say this person did a TIRA 60 day rollover on Dec 15 of 900,000, leaving $100,000 in the TIRA, and then redeposited the $900,000 back into an IRA set up at another IRA custodian on Feb 10, 2025. Would the RMD then be calculated based on the 12/31/2024 $100,000 balance which would be $3,774 with no RMD due on the newly set up IRA that would be receiving the rollover $900,000?
Now, I know an RMD may not be rolled over and generally must be the first dollars withdrawn from a TIRA. But in 2024 there is no RMD and the new receiving IRA custodian does not know if the newly received TIRA rollover deposit has already been RMD’d or not.
Can this be done as an RMD reduction strategy? My understanding of the IRA RMD rules tells me it cannot, so what am I missing? The only catch-point I can think of is the receiving IRA custodian might require something from the previous IRA custodian that the 2025 RMD has been removed from the rolled over amount….but again, I cannot find that written anywhere.
Permalink Submitted by Alan - IRA critic on Thu, 2024-08-29 14:59
Bruce, on p 7 of Pub 590B there is a paragraph titled “Outstanding rollovers”, which indicates that funds which were not in any IRA as of 12/31 must be added to that balance if rolled into another IRA. This also applies to a 401k to IRA rollover that was not in either account on that 12/31. The Pub 590B reference is derived from IRS Reg 1.401(a)(9)-7, QA 2.
As for enforcement, while the IRS receives 1099R and 5498 forms, for these types of outstanding rollovers, the 5498 would be issued for the year following the 1099R and the IRS would have to compare the two figures to determine if the rollover bridged the tax year. As far as I know, IRA custodians do not attempt to track January/Feb rollover deposits with the potential of having been distributed in the prior year, although that would be quite easy if the distribution and rollover contribution was from the same IRA account.