RMD rolled over
I just want to be clear on the proper treatment for a 401k RMD that was rolled over to an IRA
THe RMD is treated as being taxable on the return for the year of the rollover, and that amount plus earnings must come out of the IRA as a removal of excess contribution on or before the due date of the return, but can be as late as October 15. If the removal is not done by the due date or October 15, the 6% excise tax becomes applicable on the return for the year of the rollover.
Am I on the right track?
Permalink Submitted by David Mertz on Wed, 2022-04-06 15:17
All correct. The October 17, 2022 (the 15th is a Saturday) deadline to receive the return of excess contribution applies only if either the 2021 tax return or a request for fa filing extension is filed by April 18, 2022, otherwise the deadline is April 18, 2022.
Permalink Submitted by Janie Williams on Thu, 2022-04-07 11:03
If the 401k rollover was in a prior year, but the RMD was not treated as taxable nor removed as excess contributions for that year, are amended returns warranted to show the taxable 401k RMD amount, plus the 6% excise tax for each year until the year the corrective distribution was made? My understanding is regular distributions from the IRA do NOT satisfy the removal of the excess rollover contribution. It must be a removal of excess contribution with appropriate codes on 1099R.
Permalink Submitted by David Mertz on Thu, 2022-04-07 12:24
The RMD must be treated as taxable on the tax return for the year of the distribution.
If the excess was not removed from the traditional IRA by the deadline, it must be treated as an ordinary contribution, reported on Form 5329 for the year of the deposit to the extent that it was an excess contribution.
A regular distribution does not cause the excess contribution to be treated as if it was never contributed. That requires an explicit return of contribution before the due date of the tax return that would be reported with either code 8 or code P in box 7 of a Form 1099-R. However, after the due date of the tax return, including extensions, and paying a 6% penalty, the excess is resolved by either making regular distribution of the excess or applying the excess as a contribution for a future year. (Beginning with 2020, there is no longer an age limit to being able to contribute to an IRA. All that is necessary is compensation.)