Required Minimum Distributions and Net Unrealized Appreciation: Today’s Slott Report Mailbag

By Andy Ives, CFP®, AIF®
IRA Analyst
Follow Us on Twitter: @theslottreport

Question:

I turn 72 in 2023. If I wait to take my first RMD until 4/1/24, do I calculate it using my IRA balance on 12/31/23 or on 12/31/22? I think 12/31/22, but do not want to assume. I can’t find a clear answer in Pub 590-B.

Tim

Answer:

Tim,

Since you turn 72 next year (2023), that will be your first year to take a required minimum distribution (RMD). You are correct – the 2023 RMD is calculated using the 12/31/2022 IRA balance. Yes, you are allowed to delay your first RMD until April 1 of 2024. However, delaying the 2023 RMD does not change how it is calculated. You will still use the 12/31/2022 balance.

Question:

I have a client where we initiated a partial NUA (net unrealized appreciation) distribution of approximately $300K of stock with a basis of $113K into a nonqualified account. The remainder of stock ($200K and rest of 401(k) dollars) were to be rolled directly into an IRA. However, the 401(k) provider made a mistake and instead distributed the entire $500K of stock into the nonqualified account. After consulting with a CPA, he thinks we can use a 60-day rollover to fix this by taking the $200K of stock and rolling it back into IRA. Is this accurate?

Sincerely,

Collin

Answer:

Collin,

The CPA is correct. Assuming we are still within the 60-day window from when the stock was originally distributed from the plan, any shares that are subsequently rolled to an IRA will avoid taxation and will not be included in the NUA transaction. Incidentally, even if your client had done another 60-day rollover within the previous 12 months, the one-rollover-per-year rule is not an issue because plan-to-IRA rollovers don’t count. While the $200K in stock shares are moving through a non-qualified brokerage account, this is still considered a plan-to-IRA rollover.