403b RMD quandry

Submitted by Jon Aldrich on Fri, 2011-10-21 20:38

I have a new client that has a 403b and an IRA. He is 71 and taking enough out of the IRA to cover any RMD for the total amount of both the IRA and 403b. However, since you cannot combine these 2 to satisfy the RMD requirement, the 403b provider is looking to send him the amount of his 403b RMD by the end of the year, which would really increase his taxable income.

Question: as a workaround for this, if he were to roll this 403b into the existing IRA before the end of the year, since everything is now in the IRA before year end, and enough was already taken out of the existing IRA to cover what the total RMD would be for the year, can he avoid having to take the extra amount out of the 403b for the year?

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Permalink Submitted by Alan Spross on Fri, 2011-10-21 21:08

No, that wouldn’t work because the 403b plan must keep the current year RMD out of any rollover to an IRA. If the plan messed up and included it, he is still deemed to have taken the 403b RMD and created an excess IRA contribution out of it. There is no obvious solution for this, but check out the following possibilities:

1) Be sure he hit 70.5 last year. If he reached 70.5 this year he does not have to take his first 403b RMD until next April 1st.
2) Check if he had a 403b balance on 12/31/1986. If so, there is no RMD required on that balance until age 75 (but any rollover before then comes first from the old money).
3) If his IRA distribution was within the last 60 days, he could roll the excess of the RMD back to the IRA.

Permalink Submitted by Jon Aldrich on Fri, 2011-10-21 21:11

Alan:

Thanks for the reply. # 2 may be a distinct possibility. I will have to research that.

Thanks