It’s odd that the 401k administrator missed distributing the RMD, or perhaps the taxpayer was functioning as the administrator of a solo 401k. But the direct rollover includes the RMD so the RMD has been completed, which must be reported as taxable income on the 2025 return, meaning that the 1099R will not be able to be reported as issued.

Example: 100,000 401k balance. The 1099R will show 100,000 as a direct rollover coded G. Assume the two RMDs were 7,500.  Line 5a of Form 1040 must show 100,000, line 5b 7,500 with “rollover” next to 5b.

Since the 7500 was an RMD not eligible for rollover, it becomes an excess contribution to the IRA to the extent the taxpayer was not eligible to make an IRA contribution. But it may be easier to just request that the IRA custodian treat the 7500 as an excess contribution and return it net of gain/loss.

This will not be expensive from a tax standpoint because the 7500 would have been taxed anyway if it had been distributed correctly. The problem is that the tax filing will be messed up because the 1099R must be reported differently than issued, and an explanatory statement will be needed with the 2025 return. There will also be an additional 1099R to report the return of the excess contribution from the IRA.

Put another way, the tax filing must reflect that the taxable RMD was issued, then the amount of that RMD was contributed to the IRA as a regular IRA contribution, but if the taxpayer has the earnings to support an IRA contribution for 2025 that was not made, all or part of the IRA contribution might not be an excess contribution and could remain in the IRA. That said, any deductible IRA contribution after age 70.5 will mess up any future QCDs that the taxpayer may want to do by offsetting those QCDs by the amount of deducted contributions. Another reason to have the RMD amount returned from the IRA.

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