Missed RMD
I have a client who did the following and I am pretty sure I know what to do but I want to be sure.
I have a client who turned 70 in January and thus will be 70 1/2 in July. He had a SIMPLE (with another advisor) that he did not want to draw out on. We decided to move the money to a ROTH to avoid having to take RMD’s (and switching advisors of course). I told him he would first have to take this years RMD and then he would be able to recharacterize the IRA. He said he did this and so I sent the paper work in for the rechar.
Well I just found out from American funds that he has not taken his RMD and the guy there seemed green so I want the right advice
Do I have to do another rechar. back to an IRA so he can take his RMD, and then other one back to the ROTH or is there a simpler way to do it.
Thanks
Tony
Permalink Submitted by Alan Spross on Mon, 2008-06-30 18:38
Tony,
Please confirm –
1) The SIMPLE is his ONLY IRA of any type prior to the Roth and is the one with American Funds?
2) Client thought he had taken his RMD, but has not taken ANY prior distribution from the SIMPLE IRA in 2008?
Note that your referral to “recharacterization” is actually a conversion. If you reverse the conversion, that would be a recharacterization, but that will not be necessary. The corrective action will depend on your confirmation of the above.
Permalink Submitted by Tony Paper on Mon, 2008-06-30 18:46
Actually I talked to a different person with American funds. You were right I did a conversion, sorry for mis-speaking. They told me that would automatically take out his RMD from his SIMPLE (yes it was his only one) before doing the conversion so I guess all is alright.
Thank you for looking into it though. If there is more I am missing, please let me know.
Permalink Submitted by Alan Spross on Mon, 2008-06-30 19:50
Sounds like all will be OK as long as the RMD comes out prior to the conversion and the RMD amount cannot be rolled over or converted.
The desire to do a conversion has the effect of eliminating deferral of the RMD up to the RBD. Either the RMD must be accelerated or the conversion pushed back. Since the conversion is usually larger in amount, it makes sense to do both sooner. Neither the RMD nor the converted amounts counts toward the 100,000 MAGI limit for conversion.