Return RMD to IRA with different owner?

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  • #7466
    richard2
    Participant

    Husband takes RMD from his IRA. He then dies. Wife is the beneficiary of the IRA and transfers the contents into her IRA. She would like to roll the RMDs back into the IRA (that is, into her IRA). The IRA custodian will allow this rollover. It will not allow any transactions in the husband’s IRA.

    Would it be a risky move? It is not quite what is contemplated by https://www.irs.gov/pub/irs-drop/n-20-51.pdf

    #7470
    Alan S.
    Participant

    Yes, there is some risk because the 1099R and 5498 will not match up in IRS computers when the rollover is reported. There has been former PLRs allowing a decedent’s distribution to be rolled over to an inherited IRA (in one case with the estate as beneficiary), and the surviving spouse is then able to secure the balance by assigning the IRA as executor to herself, and finally to assume ownership of it).

    It is surprising the custodian is willing to bypass all these steps as well as assuming these PLRs can be applied to this client. I doubt that many custodians would allow this. The mismatch mentioned above could be avoided by the custodian allowing the rollover back to the inherited IRA so that the 1099R and 5498 would conform. If they conform, the IRS will assume the rollover was actually completed by the decedent and the account numbers would also match up as required by Notice 2020-51.

    #7481
    richard2
    Participant

    Would it be a large risk? The rollover would be worthwhile, but not if it provokes an audit. I realize it’s hard to give useful odds when there isn’t much precedent.

    In the former PLRs, did the 1099R and 5498 conform?

    Unfortunately, the custodian won’t allow any transactions in the old IRA (other than moving the assets into wife’s IRA), so it will not allow a rollover back.

    • This reply was modified 3 weeks, 6 days ago by richard2.
    #7497
    Alan S.
    Participant

    As you indicated, it is not really possible to determine if the IRS will catch this, but if they do the consequences are not that bad. The RMD would be taxable as it currently is, plus there would be an excess contribution to her IRA that would have to be returned with earnings. Once the due date for her return passes and the IRS takes no action, but catches this later on, instead of the excess removal including earnings, there would be a 6% annual excise tax for each year that the disallowed rollover remained in her IRA. It is not likely that this would trigger an audit involving the entire return, rather it would just require an excess contribution correction.

    Perhaps some of former PLR 1099R and 5498 matched up, but not others where the rollover might have been made to the surviving spouse’s IRA.

    #7514
    MarkWylie
    Participant

    What are Required Minimum Distributions?

    Required Minimum Distributions (RMDs) generally are minimum amounts that a retirement plan account owner must withdraw annually starting with the year that he or she reaches 72 (70 ½ if you reach 70 ½ before January 1, 2020), if later, the year in which he or she retires. However, if the retirement plan account is an IRA or the account owner is a 5% owner of the business sponsoring the retirement plan, the RMDs must begin once the account holder is age 72 (70 ½ if you reach 70 ½ before January 1, 2020), regardless of whether he or she is retired.

    Retirement plan participants and IRA owners, including owners of SEP IRAs and SIMPLE IRAs, are responsible for taking the correct amount of RMDs on time every year from their accounts, and they face stiff penalties for failure to take RMDs.

    When a retirement plan account owner or IRA owner, who dies before January 1, 2020, dies before RMDs have begun, generally, the entire amount of the owner’s benefit must be distributed to the beneficiary who is an individual either (1) within 5 years of the owner’s death, or (2) over the life of the beneficiary starting no later than one year following the owner’s death. For defined contribution plan participants, or Individual Retirement Account owners, who die after December 31, 2019, (with a delayed effective date for certain collectively bargained plans), the SECURE Act requires the entire balance of the participant’s account be distributed within ten years. There is an exception for a surviving spouse, a child who has not reached the age of majority, a disabled or chronically ill person or a person not more than ten years younger than the employee or IRA account owner. The new 10-year rule applies regardless of whether the participant dies before, on, or after, the required beginning date, now age 72.

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