Inadvertent RMD rollover by a spouse beneficiary
Interesting thought… If a qualified retirement plan does a direct rollover to an inherited IRA of a spouse beneficiary before first completing the decedent’s year-of death RMD (or in a subsequent year before completing the spouse’s RMD as beneficiary), wouldn’t the deposit of the RMD that was ineligible for rollover result in the inherited IRA defaulting to being an owned IRA because such a deposit would constitute a regular contribution to the inherited IRA? If so, would obtaining a return of contribution undo the default to ownership?
Permalink Submitted by Alan - IRA critic on Fri, 2022-04-15 15:21
Seems that if ANY amount of the direct rollover whatsoever was an allowed regular contribution to the IRA due to TP or spouse having earned income, election of ownership would occur per 1.408-8, QA 5(b)(2).
5(b)(2) conditions such election of ownership if the amount contributed is subject to 401(a)(9) RMDs. While excess contribution balances appear to be subject to RMDs as part of the year end balance if not yet returned, QA 11 states that the return of excess either prior to or post due date does NOT count toward the IRA RMD. I think that the excess being included in the balance makes it subject to RMDs even if the corrective distribution does not count toward the RMD for the distribution year.
I don’t think the return of excess negates the election of ownership. As a practical matter an excess can be returned anytime, before or after the due date, or perhaps never. It does not make sense that the election could be in limbo indefinitely awaiting a corrective distribution of excess, therefore I think that the rollover of any amount of plan RMD would constitute an irrevocable election of ownership.