How Do I Take an RMD on An Account Valued at Zero?

By Joe Cicchinelli and Beverly DeVeny
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This week’s Slott Report Mailbag looks at a dilemma we see in many households: expected income exceeds Roth IRA contribution limits (read the 2015 limits here), so the family elects to open a Traditional IRA, only to see by year-end that the expected income fell under the contribution limits. Can this family convert the Traditional IRA money to a Roth? Also, we examine the process of taking a required minimum distribution on an account valued at zero, and answer an inherited IRA question about the proper way of distributing funds. As always, we recommend you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure. You can find one in your area here.


My daughter opened a Traditional IRA for 2014, anticipating that their joint income would exceed the limit for a Roth. Her husband was laid off for part of the year so their combined income for 2014 was actually within the limits for a Roth. Can she covert that money to a Roth?

Yes, however the transaction is actually called a recharacterization. The Traditional IRA contribution must be directly transferred (plus or minus the investment gains) to the Roth IRA. Make sure you tell the IRA custodian that you are doing a recharacterization (not a conversion) so the IRS reporting will be correct. After the recharacterization, the contribution is treated as if it were originally made as a Roth IRA contribution. You can read more about the recharacterization process here.

A conversion is also possible, however the conversion will be taxable to the extent that your daughter has pre-tax funds in any of her IRAs.


I have an online IRA stock trading account that has a value of $25 or so. The stock is so devalued that it cannot be sold and I cannot close the account. I will turn age 70 ½ this year and need to take an RMD of $1. This is my only IRA account and I don’t know how to take the RMD. I would like to close the account this year, even if it means giving up the stock, but I am unsure how to do that. How can I take the RMD and close the account?


If the account value at the time of the distribution is zero, you don’t have to take an RMD. You should ask the IRA custodian to distribute the stock to you in-kind (using its fair market value of zero) to close the account.


Hi Ed: 

My wife inherited an IRA from her sister. She is age 70 and will be age 70 ½ shortly. Her sister died 12 days after her 72nd birthday. I have been given conflicting answers to my questions and hope you can help me.  

  1. Is the 5-year rule mandatory in this instance?
  2. If the 5-year rule isn’t mandatory, can she use the single Life Expectancy Table?

Would really appreciate an answer as I get different answers from different professionals.

Thanks in advance!

The answer will depend on whether your wife was named on the beneficiary form or if she inherited through her sister’s estate. Assuming she was named on the beneficiary form, because your wife’s sister died after her required beginning date (April 1 after the year she turned age 70 ½), the five-year rule is not an option. Your wife can use her single life expectancy starting the year after her sister died. If she inherited through her sister’s estate, then your wife can use the younger of her life expectancy or her sister’s life expectancy based on the Single Life Expectancy Table.

Those are the options allowed by the tax code. The IRA custodian could mandate a five-year payout in their IRA document.


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