When Must My Wife Take Her First Required Minimum Distribution?

By Sarah Brenner and Beverly DeVeny
Follow Us On Twitter: @theslottreport

The Slott Report Mailbag is full of inquisitive consumers searching for answers on the pro-rata rule, the intricacies of IRA rollovers, and the “due dates” for an IRA owner’s first and second required minimum distributions (RMDs). As always, we recommend that 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.
 

1.

I read your series of Backdoor and Pro-Rata articles and questions.  This brings up my question.

Earlier this year, I converted an old 401(k) plan to a Rollover IRA for the taxable funds and a Roth for the non-taxable funds (transactions were trustee-to-trustee transfers).

As part of my annual plan, I have been converting say $15,000, from a traditional IRA (totally taxable) to a Roth for the past several years. This is so I’m not bumped into a higher bracket.

If I do this $15,000 conversion again this year, do I risk the pro-rata rule on my previous 401(k) rollover?

Regards,

Wayne

Answer:
Good news! The pro-rata rule will not apply to your rollover and conversion from the 401(k) plan. The rules allow you to directly roll over the taxable funds from your 401(k) to a traditional IRA and the nontaxable funds to a Roth IRA. This is true even if you convert funds from a traditional IRA to a Roth IRA in the same year. The pro-rata rule for the $15,000 conversion would only apply to your traditional IRAs, including SEP and SIMPLE IRAs.

2.

My husband and I have several IRAs.

Two are traditional IRAs and two are SIMPLE IRAs through our company we own.

Our question is, can we transfer part of an IRA to another custodian without messing up the once-per-year rule? We will not take custody of it, just institution to institution.

Example: $100,000.00 IRA but only want to move part of it, say $75,000.00 to another institution. How can we as individuals, do this, his and mine?  Can we each do this in our IRAs or each do this in only one IRA per family? And can it only be done if the entire amount is transferred? Also, we each have a very small IRA ($3000.00 and $1800.00) in a money market account.  We would like to roll over or transfer those to our HSA (health savings account).

Can that also only be done in one year separate from other IRA transfers(rollovers)?  Or would this also count toward the other transfers/ rollover per year?

As you can probably tell, we are extremely confused by all of this!

Thank you so much,

Pam
 

Answer:
It is understandable that you might be confused! This is a complicated area. If you are interested in moving your IRA funds, you will want to consider a transfer and not a rollover. When you transfer your IRA funds, the funds are not paid to you but are instead paid directly to the new IRA custodian. You can transfer funds between IRAs as often as you like during the year. Rollovers are different and more strictly regulated. The IRA funds are paid to you and you then make a rollover deposit within 60 days from the day you receive the distribution. Generally, you may only roll over one distribution from all of your IRAs in a 365-day period.

While you can transfer funds from your SIMPLE IRA to a Traditional IRA, this can only be done after two years have passed since your first contribution to the SIMPLE IRA. Traditional IRA funds may not be transferred to a SIMPLE IRA.

You can move your IRA funds to your HSA by doing a qualified HSA funding distribution directly from your IRA to your HSA. You are limited to transferring up to the amount you are permitted to contribute to your HSA for the year, and if you contribute the full amount, no other contributions may be made to your HSA. You may only do a qualified HSA funding distribution once in your lifetime and you must remain eligible for an HSA for a subsequent specific period of time after the contribution is made. A qualified HSA funding distribution does not count towards the once-per-year IRA rollover rule.

Because your situation is complex, consider a consultation with a knowledgeable financial advisor to discuss what strategies are best for you.
 

3.

Hello,

My wife turned age 70 in September 2015 so she’ll be turning age 70 ½ in 2016.  I’m pretty sure she must take her first RMD (required minimum distribution) on or before April 1, 2016, correct?  Will she also need to take her second RMD on or before December 31, 2016?

Thanks in advance for helping us clear up this concern.

David

Answer:
Your wife has a little more time than you may think to take her first RMD. She will attain age 70 ½ in 2016. That is the first year for which she must take an RMD. The deadline for taking her 2016 RMD is April 1, 2017. While your wife may decide not take her RMD in 2016 and instead wait until April 1, 2017, she would then need to take two RMDs in 2017. Her 2017 RMD would need to be taken by December 31, 2017.