401(k) RMD (year of retirement)
I am looking for the proper correction method in regards to the following fact pattern
FACTS:
401k participant, 80, retires in 2013
rolls over part of his 401(k) balance to a T-IRA
participant did not take an RMD prior to the rollover
remaining 401k balance is not sufficient to cover the RMD
Questions:
The 401k RMD should have been taken prior to the IRA rollover.
What steps need to be taken (operationally and tax reporting) to remove (withdraw) the RMD amount from the IRA?
What deadlines do I need be made aware of?
Thank you
Permalink Submitted by Alan - IRA critic on Tue, 2013-09-03 19:45
The tax reporting in this situation is the worst part. Since the direct rollover included the RMD amount, the RMD is satisfied and becomes an excess IRA contribution. The IRA custodian should be told what happened and that the RMD amount for the 401k needs to be corrected as an excess IRA contribution. Any earnings on the RMD amount in the IRA will be taxable. The rest of the 401k plan should be rolled over to the IRA before year end to avoid another plan RMD unless participant is OK with having 401k RMDs in the future. As for reporting all this, despite the fact that the 1099R will show the entire rollover, participant should should NOT include the RMD amount on line 16b. The RMD amount will therefore be taxed. And the earnings on the amount of the excess IRA contribution should be reported on line 15b since there will also be a 1099R for the corrective distribution from the IRA. An explanatory statement should be included with the tax return so the IRS will know why some of the 1099R rollover amount was not treated as a direct rollover.