Retirement Savings and Benefits
Questions and comments about IRAs, 401k accounts, social security, and other forms of retirement savings and benefits.
Timing the RMD
Posted by: BruceM, October 10, 2017 08:03PM
Hello
Ran into this situation yesterday. I think I know the answer but thought I'd check here....

H&W are age 74 and 72, respectively. W has TIRA at Schwab and a SEP IRA (SIRA) at a mutual fund. The following are the sequence of events relating to the RMD on these accounts:

Feb 2017 took RMD from Schwab TIRA for that IRA only
June 2017 directlyrolled over MF SIRA balance to Schwab TIRA
August 2017 took RMD from combined Schwab IRA equal to the RMD for the MF SIRA.

Question: anything wrong here?

The Schwab TIRA is larger than the MF SIRA and so the RMD taken in February is greater than the RMD due on the MF SIRA.

Of course, each IRA must have their own RMD calculated for that RMD year, but the actual RMD may be withdrawn from any or all of them. So my reasoning is the RMD for the SIRA was met with the February withdrawal from the Schwab TIRA as it exceeded the RMD required of the SIRA....and then after the rollover, the rest of the RMD was withdrawn. Correct?

But what would have happened had the rolled over MF IRA had a larger RMD than the Schwab TIRA, which is to say the withdrawal at the Schwab TIRA had not covered the MF RMD prior to the rollover. Because the withdrawal after the rollover occurred in the same year and met the RMD requirement for the rolled over SIRA, would the IRS be ok with that, or would the rollover have to be reversed, the RMD taken and then that balance rolled back over to the Schwab TIRA?

The 1099R reporting should be....

From MF SIRA, box 7 Code G
From Schwab TIRA, box 7 Code 7 for the total of both withdrawals for 2017.

Correct?

Thanks

BruceM

Re: Timing the RMD
Posted by: Alan S., October 10, 2017 11:22PM
Hi Bruce. How the rollover was done makes a difference.

Since these accounts are both IRAs, a direct rollover (G code) does not apply. Either the funds were moved by a non reportable transfer OR by an indirect rollover.

Which of the latter two applies?

Re: Timing the RMD
Posted by: BruceM, October 11, 2017 03:31PM
The rollover was agent-to-agent. Are you saying this is non-reportable, as in not reported on a 1099R?

Re: Timing the RMD
Posted by: Alan S., October 11, 2017 05:28PM
Yes, sounds like a direct TtoT transfer. These do not generate a 1099R or a 5498 from the receiving account. More on point, there is no RMD distributed so they do not change the RMD status. Conversely, a G coded direct rollover (eg 401k to IRA) are considered distributions and rollovers, so if there is an RMD not yet satisfied, the RMD is credited against the amount of the direct rollover.

Accordingly, in your example the June, 2017 transfer to the Schwab TIRA is a non event for RMD or tax reporting, but left the RMD for the former account outstanding. This was satisfied in August from the Schwab RMD, so all is fine.

Schwab's 1099R should simply total the two distributions and they should equal the total RMD due for the year.

Things would be more complicated if the June transaction had been a 60 day rollover. In that case, a portion of the amount rolled over was the RMD for the distributing account and therefore not eligible for rollover. To the extent of the RMD there would be an excess contribution to the Schwab account that would have to be removed in the usual procedure. The costly pitfall here would be that the August distribution would have been unnecessary because the RMD would have been completed in June, but the August distribution could not be rolled back because of the one rollover per 12 month limitation.

I suspect that this latter scenario happens all the time due to the RMD aggregation rules since custodians have no way of knowing whether the total RMD has been completed from a different IRA account. And the IRS does not know the date order, all they see are the 1099R forms. Tax preparers are not looking at dates either, just the 1099R forms, so client reports a rollover on Form 1040 for the June distribution 1099R, and everyone is happy because Schwab's 1099R still adds up to the total RMD. However, there has been an overlooked technical violation.




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