Over 73 and still working. Job may be terminated in June. Would rollover taken in February count toward plan RMD?

Submitted by Tom Belding on Wed, 2023-05-17 13:09

Client is over 73 and has learned that his position may be terminated in the coming months. Earlier this year he did a rollover (Roth conversion) from the company plan. Would that amount count toward his RMD for this year? If not, since he will have the RMD requirement, would it be possible for him to reverse the rollover in order to take it as the RMD? Thanks!



Submitted by Alan - IRA critic on Wed, 2023-05-17 14:06

  • If client is terminated anytime this year, the prior rollover will have to be reported up to the RMD amount as a taxable distribution and removed from the Roth IRA as an excess regular Roth IRA contribution to the extent client is eligible for a regular Roth IRA contribution that he did not make. The tax reporting will not conform to the 1099R forms issued thus requiring an explanatory statement with the 2023 return.
  • For example, Roth rollover of 40k but RMD is 25k. 40k will be reported on line 5b as taxable. Despite Form 5498 issued by the Roth custodian showing a rollover contribution of 40k, 25k is a failed conversion of an RMD which would have to removed as an excess regular Roth IRA contribution. However, if he is eligible for a 7.5k regular Roth contribution that he did not make, he could optionally leave 22.5k in the Roth and only request an excess contribution return of 17.5k, adjusted by the Roth custodian for any gain or loss. 
  • Therefore, this is more of a tax reporting hassle than an error that will cost him. He ends up with less in his Roth IRA however due to the required corrective distribution. And with these corrections, the 1099 R and 5498 forms will remain as issued, causing the actual Roth IRA basis to vary from the stated amount on these forms.

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