Excess Distribution from IRA

Submitted by Marc Usem on Tue, 2023-04-04 19:33

If you withdraw more from a traditional IRA than intended (the RMD), is there any option to return some of the withdrawal and any tax withheld or is the withdrawal irrevocable?



Submitted by Alan - IRA critic on Tue, 2023-04-04 20:21

Amounts withdrawn in excess of the RMD can be rolled back or rolled over, including amounts withheld. Rollovers are subject to the one rollover limitation over 12 months, so if the excess of RMD is small it is probably not worth using up the only allowed rollover for the next year.

Submitted by Marc Usem on Tue, 2023-04-04 21:58

It was not a rollover but traditioanl IRA withdrawal. Is there a reference for the rules pertaining to “Amounts withdrawn in excess of the RMD can be rolled back or rolled over, including amounts withheld.”?

Submitted by Alan - IRA critic on Wed, 2023-04-05 00:44

  • Yes, but you want to do a rollover.  You can roll over any owned IRA distribution except the portion that is your RMD and returns of excess contributions. But you need to be careful when replacing the amount withheld with other funds. Include the amount withheld as part of your RMD, then rollover the excess. If you post the total amount distributed, the portion which is your RMD, and the portion withheld, I can clarify what amounts you can roll over even though it may require use to come up with additional money based on the amount withheld. Affected rules are in several places, and it is not possible to post them all here. Following is a link to Pub 590 A, see p 24 at the bottom where it states that RMD amounts cannot be rolled over. But you want to roll over the excess and that’s OK. That is why the actual dollars can serve as a good example of what amounts you can roll back. Note that withheld amounts are treated as being first distributed to you and then paid by you to the IRS even though withholding goes directly from the IRA Custodian to the IRS. Since the first dollars distributed from any IRA you own are applied against the RMD, the withheld amount will be treated as RMD money. The amount withheld is probably 10%, which is the default rate unless you decline withholding.
  • 2022 Publication 590-A (irs.gov)

Submitted by Marc Usem on Wed, 2023-04-05 14:32

The total withdrawal was $38,105, the RMD was $18,733 and withholding was $0 so the excess is $19,372

Submitted by Alan - IRA critic on Wed, 2023-04-05 14:53

OK, then up to 19,372 can be rolled back within 60 days of receipt, providing that there has been no prior distribution in the last year that was rolled over. 

Submitted by Marc Usem on Wed, 2023-04-05 21:39

The IRA withdrawal was more then three months ago on 12/27/2022 – so is there still an option to roll it back?

Submitted by Alan - IRA critic on Wed, 2023-04-05 23:55

  • No, the 60 day deadline has expired. That said, if the excess of RMD amount was distributed due to custodian error, you could fill out a self certification form per Rev Proc 2020-46 linked below. There are also other situations that qualify listed on the form that might apply to your situation. You would have to convince your IRA custodian to accept the form and the late rollover. This may take enough time that would force you to file an extension if you do not want to report the entire distribution as 2022 taxable income. 
  • Microsoft Word – rp-20-46.docx (benefitslink.com)

Submitted by Marc Usem on Mon, 2023-04-10 15:25

The Proc 2020-46 was a good solution. In this case the IRA is a beneficiary IRA and the custodian is not allowing redeposit. Do you know if there is any recourse?

Submitted by Alan - IRA critic on Mon, 2023-04-10 15:36

  • If the beneficiary is a non spouse, there is no solution since there are no rollovers allowed at all, even within 60 days. If the beneficiary is the surviving spouse Rev Proc 2020-46 could still be used if the spouse meets one of the listed exceptions on the self certification form.
  • Note that the additional amount withdrawn will reduce future beneficiary RMDs due to the reduced balance.

Submitted by Marc Usem on Wed, 2023-04-12 16:06

The custodian is not allowing the redeposit for the 60 rollover exception from rev proc 202-46 from the beneficary IRA (beneficiary is surviving spouse) indicating there is simply no option to roll money back into the beneficiary IRA. The issue seems to be because they are not willing to code the transaction as a rollover. Would it change the calculus if he wanted to roll over the excess contribution to his own IRA versus back to the beneficiary IRA? 

Submitted by David Mertz on Wed, 2023-04-12 17:34

Since the beneficiary is the surviving spouse, the IRA custodian should accept a late rollover under Rev. Proc. 2020-46 to his own IRA, assuming that one of the listed reasons applies.

Submitted by Marc Usem on Thu, 2023-04-13 17:56

While the custodian is not allowing the redeposit to the beneficiary IRA, would the spouse be able to rollover the funds to his own IRA as another option? 

Submitted by Alan - IRA critic on Thu, 2023-04-13 18:20

Yes, a (late) spousal rollover to his own IRA is the only solution to a taxable distribution.

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