In 2021 a client took his RMD from his company’s 401(k) plan. He then received a letter that the company did a VCP and a portion of his distribution was changed from code 7 to code E. I do not believe that the amounts coded as E can qualify as part of his RMD so he will need to catch up in 2022. Am I correct?
You are correct. Corrective distributions cannot also be credited toward the RMD. The plan should have made an additional distribution of the E coded amount and both the plan and the client should have completed a 5329 requesting the penalty waiver for being late on a portion of the 2021 RMD. The taxable amount in 2022 would be the 2022 RMD plus the additional late RMD for 2021.
Permalink Submitted by David Mertz on Mon, 2022-10-24 17:40
Correct. CFR 1.401(a)(9)-5 Q&A-9(b)(3) excludes such a corrective distribution from satisfying any part of the RMD. Only the portion of his 2021 RMD reported on the corrected code-7 Form 1099-R has been satisfied. He will need to take a distribution of the rest of his 2021 RMD in 2022 and file a 2021 Form 5329 requesting a waiver of the excess-accumulation penalty. Both this late distribution taken in 2022 and the RMD for 2022 will be taxable on his 2022 tax return.