IRA Rollover after 70 1/2
I was on the teleconference today and would like to clarify something with regards to rollovers for IRA owners who are over 70 1/2. If someone has an IRA at a bank and wants to do a direct trustee to trustee transfer to a brokerage firm, I thought I heard Ed say that their RMD has to come out of the IRA while it’s at the bank before the account gets directly transferred. Apparently if that doesn’t happen, it creates an excess contribution for the RMD amount in the new IRA account. Is this true or was this related to a traditional rollover situation where the IRA owner actually took possession of the monies and then rolled the entire amount into the new IRA?
Permalink Submitted by Alan Spross on Tue, 2008-03-04 22:24
It applies to an actual rollover, but not a direct trustee transfer of the funds in what should be a non reportable transaction (no 1099R). A couple posts down is a copy of the IRS Regs summary statement covering this.
The RMD must also be withheld by an employer account because these cannot be transferred to an IRA in a non reported transaction. A 1099R is issued with the G coding for a direct transfer, and in those cases the RMD must be withheld from the transferred amount.
Now back to the IRA to IRA rollover. SInce RMDs can be aggregated between different IRA accounts, a taxpayer might have already satisfied his total RMD from a different IRA before ordering the rollover distribution. The IRA custodian does not need to withhold the RMD and a full rollover can be done because the RMD has already been satisfied by the earlier IRA distribution. The only employer plans that have this flexibility are 403b accounts.
It is true that IF the RMD has not been satisfied and an IRA rollover is done, the rollover contribution must be corrected as an excess contribution to the receiving IRA. For this reason and others, it is even more advisable to move the funds by direct transfer after reaching 70.5 than before.