RMD Excess/Corrective Distribution
If a 73 year business owner has 1M in his profit sharing plan and did an in-service rollover/distribution of $200,000 to an IRA back in February, how is the correction handled? My understanding is his $68,000 RMD for 2008 should have been taken prior to the rollover to the IRA. So now, do we take out the $68,000 from the IRA as an excess contribution and report this amount on his 1040 as his RMD? How does the custodian handle the corrective distribution of the excess contribution form a reporting standpoint? Lastly, his $200,000 is now $160,000 due to market declines, how do we factor that into the equation when determining how much to take out of the IRA?
Permalink Submitted by Denise Appleby on Fri, 2008-12-05 05:51
[quote=”jsard”]If a 73 year business owner has 1M in his profit sharing plan and did an in-service rollover/distribution of $200,000 to an IRA back in February, how is the correction handled? My understanding is his $68,000 RMD for 2008 should have been taken prior to the rollover to the IRA. So now, do we take out the $68,000 from the IRA as an excess contribution and report this amount on his 1040 as his RMD? How does the custodian handle the corrective distribution of the excess contribution form a reporting standpoint? Lastly, his $200,000 is now $160,000 due to market declines, how do we factor that into the equation when determining how much to take out of the IRA?[/quote]
Your understanding is correct. So, he now has an ineligible rollover of $68,000 in his IRA, which must be corrected as a return of excess. The excess must include any NIA, which can be earnings or losses. The NIA is calculated on the entire value of the IRA for the computation period. If it is determined that there is a loss on the $68,000, he is required to withdraw the net amount ($68,000 less the losses).
See http://www.retirementdictionary.com/nia.htm