IRA rollover mess
My 85-year old widowed client inherited two retirement plans from her husband in 2011. I believe distributions were going to her husband and MRDs were up to date up to 2011. But at his death the wrong ss number was put on these accounts, as apparently my client gave the custodian (Fidelity) the wrong number. No contact or distributions have been received from these accounts (value about $200K each) in 2012 or 2013 due to the wrong Social on the accounts.
In winter of this year the client and her son visited Fidelity and corrected the Social Security number on the accounts. She and I were able to call them and get a spousal rollover for each account into her name written to her new custodian for her benefit. Fidelity does not seem to be withholding anything for RMDs. Her husband took at least his RMDs up until his death. But now after the transfer to the spouse’s rollover IRA, those old accounts don’t exist – but MRDs were not taken for 2012 or 2013. Do they have to be taken from her rollover IRA?
Should we take the 2012 and 2013 RMDs from her rollover IRA? Should we just forget about past RMDs on her husband’s accounts? How should we proceed? Thank you!
Ron
Permalink Submitted by Alan - IRA critic on Wed, 2013-05-22 19:39
In this situation, her beneficiary RMDs for 2012 and 2013 are deemed to have been made with the rollover, and these amounts constitute an excess regular IRA contribution for 2013. This IRA excess is corrected by explaining the situation to the IRA custodian and requesting an IRA distribution coded as a corrective distribution. Any allocated earnings will be taxable. The 2 years of RMDs from the qualified plan are reported as NOT rolled over on line 16b, and therefore taxable. The earnings for the time in the IRA are taxable on line 15b. Her 2013 return should include an explanatory statement regarding this rollover so the IRS will know why her plan rollover is being reported for less than the 5498 issued by the IRA custodian showing the receipt of the rollover. And her 2012 return needs to be amended to file Form 5329 requesting the waiver of the 50% penalty for 2012 for “reasonable cause” per p 6 of the 5329 Inst.
Permalink Submitted by Ronald Birnbaum on Tue, 2013-05-28 19:39
Thank you for your reply. You say to report the 2 years of RMDs as NOT rolled over on line 16b – but you failed to say on what form! Same thing for earnings for the time in the RIA which are taxable on line 15b – of what? Her 2013 1040? THanks.
Permalink Submitted by Alan - IRA critic on Tue, 2013-05-28 21:02
Yes, Form 1040 for 2013 for both lines.