Multiple IRA and RMDs

Submitted by Mhotchkiss on Thu, 2023-08-10 16:56

I believe Pub 590-b says that RMDs are not eligible for rollover. That would mean they are not eligible to be converted to a Roth IRA. I believe it suggests that any money taken out of an IRA in an RMD year must FIRST satisfy the RMD requirement. If this is all true, I believe that if one were to have taken their calculated RMD for an IRA at a bank, and then converted the remainder of the IRA held at the bank, while having still another IRA at a brokerage that has not yet satisfied the RMD amount based on the brokerage IRA, that the client may have violated the rules and is potentially liable for a 6% excise penalty. Would it be proper to asssume that the IRS would apply such strict interpretation during an audit or would they likely say “as long as the total RMD for all IRAs was satisfied by the end of the year, it really doesn’t matter when the conversions were done relative to the distribution of the full RMD”?
-m

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Permalink Submitted by Alan - IRA critic on Thu, 2023-08-10 18:08

The rules on this are in the process of change per the proposed Secure Act Regs. Prior to this the Regs only specified that the RMD for “that IRA”, meaning each separate IRA account must be completed before rolling over (eg a conversion) a later distribution from that particular IRA. The RMD for other IRAs could wait. However, the new proposed Regs clearly state that distributions from any non Roth IRA must be applied to the total RMD for all of them. Therefore, your example would now result in the conversion being a failed conversion to the extent that the converted amount applied to the total RMD.
That said, since these Regs are still not final we are in a limbo period between the old rules and the proposed new rules. Until the new rules are finalized, the IRS most likely would allow the taxpayer to comply with either of the two rules if there is a conflict.
The above observations equally apply to 403b plans, since RMDs for 403b plans can also be aggregated.
Since 403b administrators and IRA custodians are not aware of other like accounts the participant may have, they will be handicapped with respect to enforcing the new rules when they become final, and up to now the IRS has depended on these custodians to enforce the RMD rules. The IRS itself has not used their database to actively enforce RMD rules even though they have the age and prior year end balance info from which to do so. But right now the IRS is having problems dealing with both Secure Acts.