Account value drop below RMD

Submitted by Baird Wealth Planning on Mon, 2022-11-14 15:53

I found the below in a 2015 article:

“The only time you do not have to take the full RMD for the year is when the IRA account value drops below the amount of the RMD. Then you empty the account to satisfy the RMD. There is no penalty in this situation.”

What if the individual has other IRAs with positive balances from which they could satisfy the empty account’s RMD. Do they have to do so to avoid the penalty? Or does the fact that the account, associated with that RMD, has dropped to $0 eliminate the remainder of the RMD?

https://irahelp.com/slottreport/illiquid-ira-assets-and-satisfying-your-rmd



Submitted by Alan - IRA critic on Mon, 2022-11-14 18:26

  • Good question. I cannot locate any clear guidance on whether the RMD aggregation rules can be considered optional when it comes to making up the RMD shortfall for an IRA account on which the balance falls short of the RMD. The IRS Regs state that the RMD “may” be aggregated, and that falls short of “must” be aggravated.  IRS Regs do make it clear that once an RMD is completed for any particular IRA account, any additional distribution from that account is rollover eligible, and how could it be rollover eligible if the distribution was required under aggregation rules to complete an RMD for another IRA account with insufficient balance? Therefore, your question may have no clear answer. Even with respect to the Slott article you linked, I cannot locate any IRS guidance that clearly states that there is no penalty if the account exhausts the balance. Perhaps that was stated in a PLR, but it’s not in Pub 590 B or Sec 4974 (50% excess accumulations excise tax) of the Code. Maybe 4974 simply does not apply since there is no “accumulation” if the balance is 0.
  • Now, what if the 0 balance did not occur from a lousy investment or a very low divisor, but was created by the IRA owner’s pre RMD direct transfer to another IRA, which reduced the transferor IRA balance below the RMD for that account?  In that case, the IRA owner best apply the aggregation rules to complete the entire RMD.

Submitted by David Mertz on Mon, 2022-11-14 19:52

  • In the case of a trustee-to-trustee transfer, CFR 1.408-8 Q&A-8 makes it clear that the RMD for the transferor plan must still be satisfied after the transfer.
  • The ambiguities are is really the result of the IRS not having simply taken the position that the RMD is to be calculated on the aggregate year-end balance in traditional IRAs and that that entire RMD so calculated must be satisfied by distributions from the IRAs in any combination before any other distributions are made from any of the IRAs.  Had they done that, I don’t think that any of the ambiguities would exist, but Roth conversions would then have to wait until the entire RMD was satisfied.

Submitted by [email protected] on Tue, 2022-11-15 01:38

Thank you for your help. I’ll take the conservative approach and satisfy the remaining RMD from the other accounts as it is not substantial.

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