RMD from 403(b) vs IRA – Special situation

Submitted by Jeffrey Vahanian on Wed, 2017-07-19 16:09

We have a client who turns 70.5 this year. (DOB 1/25/47)

As of 12/31/16 the client had a 403(b) annuity. In January 2017, the client did a permissible rollover of the full balance of the 403(b) to a Traditional IRA.
Since the 2017 RMD calculation is on the 403(b) value as of 12/31/16, must the RMD associated with the now Traditional IRA come from a 403(b) because that was the account type as of 12/31/16? Or can that RMD come from the now Traditional IRA?

The client maintains a second 403(b) account that could be accessed for both RMDs if necessary. We simply want to clarify what is most accurate in this case.

Thank you



Submitted by Alan - IRA critic on Wed, 2017-07-19 17:25

The January 2017 rollover is deemed to include the 403b RMD for the account that was rolled over. The amount of that RMD is not rollover eligible so client has an excess IRA contribution to the extent of that RMD. This excess must be removed from the IRA with allocated earnings and the IRA custodian must code it properly as the return of an excess contribution. It may take some explaining to the custodian how the excess occurred. While the second 403b COULD HAVE distributed the entire RMD for both before the rollover, that did not happen so now the second 403b account must complete it’s own RMD by the required beginning date. An IRA account cannot distribute RMDs other than from other IRA accounts, not 403b accounts. All this is not costly, but is somewhat of a hassle with respect to tax reporting. I assume client did not expect to retire in January when he did the IRA rollover?

Submitted by Ben Meyer on Wed, 2017-07-19 18:04

  • A different issue can arise if the two 403(b) accounts are derived from different employers and if the client is still employed by one of the employers.  For a 403(b) plan, RMDs are deferred when the account holder is over 70 1/2 AND is still employed by the employer that sponsors the plan.  So the need to take RMDs depends on whether the client is still employed, and also whether the current employer sponsors either or both of the plans.
  • If the employee retires later in the year, RMDs previously deferred will be due for that year if the employee reaches 70 1/2 in that year or previously.

Submitted by Jeffrey Vahanian on Fri, 2017-07-21 15:16

I should clarify timing of the rollover. The client is retired, by the way. He did not turn 70.5 until January 2017.Funds were liquidated from the 403(b) in December 2016. The custodian sent a check via regular mail, so the funds were not received into the IRA until January 2017. How does this impact the situation?

Submitted by Ben Meyer on Fri, 2017-07-21 15:49

  • Did the client receive form 1099-R for year 2016 from the 403(b) plan early in 2017?  If so, was the full amount of the check shown in box 1, with “7” as the code in box 7?  Was the balance of the 403(b) account shown as zero on December 31, 2016?  If so, this is an “outstanding rollover” and needs to be added to the client’s IRA balance as of December 31, 2016.  If the client was born in January 1947 he will turn 70.5 in July 2017.  Therefore. the first year the client will have required minimum distributions is 2017.  Corrections should thus be made as Alan described in his earlier posting.
  • The client will also need to take an RMD from the other 403(b) account that he still holds.  But this other RMD can be delayed until April 1, 2018 if he desires.  In this case there will be two RMDs in 2018, since the normal 2018 RMD must be taken by December 31, 2018.

Submitted by David Mertz on Fri, 2017-07-21 17:39

If the distribution from the 403(b) was made in 2016, reported on a 2016 Form 1099-R, none of the distribution was RMD and, therefore, none of this rollover to the IRA was an excess contribution and there is nothing to correct with respect to the rollover

Submitted by Ben Meyer on Fri, 2017-07-21 20:04

Good point that it is the distribution that controls eligibility for rollover, not the characteristics of the receiving plan.  The receiving IRA will then include the value of the rollover in the calculation of the 2017 RMD under the IRA.

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