Defining “Ongoing SIMPLE IRA” for QCD Purposes

Submitted by Bob Smith on Tue, 2019-03-05 23:07

Client now 70 1/2, wants to take RMD as QCD from his SIMPLE IRA. He has NOT made any contributions to his OWN SIMPLE IRA for 2019, but has made 2019 contributions on behalf of all of his employees into their own SIMPLEs. Two questions for the forum, please:

1. Do these contributions on behalf of his employees define the SIMPLE as “ongoing” per Notice 2007-7 Q&A -36, and therefore prevent him from taking his RMD as a QCD this year? Or can he take a QCD because he has not and will not contribute to his own SIMPLE account this year?

2. Assuming the answer to #1 is that the plan is considered ongoing, one alternative could be to roll the SIMPLE into a trad. IRA, however, the problem with doing that is the SIMPLE RMD would need to be distributed prior to the rollover, and therefore ineligible for QCD purposes, correct? Or could the two RMDs be aggregated and come out as one from the trad. IRA after the rollover?

More detail on #2: The plan is setup with the 3% $ for $ match, so we’ll be rolling his simple over to trad. IRA since he is no longer contributing, only reason this is a problem this year is b/c of the RMD from the SIMPLE, unless the two can be aggregated, which I believe the answer to be no.

Thank you,

— Bob



Submitted by Alan - IRA critic on Thu, 2019-03-07 03:16

  1. The definition of “on going SIMPLE IRA” in 2007-7 relates to the plan itself irrespective of contributions to an individual who may have declined contributions in the notification period. The owner is treated as any other employee. Therefore, this is an “on going SIMPLE” as described.
  2. This alternative would work if the funds were directly transferred to a TIRA account, as that is not a distribution of an RMD, nor is it reported on a 1099R. Of course, the SIMPLE 2 year waiting period would have to be completed first. Then, under the IRA RMD aggregation rules, the RMD for any of the IRA accounts could be distributed as a QCD from the TIRA account even if a new TIRA account was opened to receive the transfer.

Submitted by Bob Smith on Thu, 2019-03-07 23:37

Thank you, Alan! Very helpful, and really appreciate your pointing out the aggregate RMD rule which I was certainly overlooking. This answers my questions and provides next steps.

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