RMD's

[WhiteOleander]

Have a client that had money in a 401k pension. He retired and rolled it into an IRA.

He is 82 so RMD's were required. Company A had 401k and rolled it to Bank B that is the custodian for the IRA. Before the rollover to Bank B, Company A distributed the RMD.

Bank B has distributed a RMD for the IRA. Since the IRA was formed from the rollover of funds from a 401k after the RMD for the 401k, is the RMD for the IRA required.

Taxpayer is confused and did not realize both institutions paid out a RMD.

Example: 401k 225000
25000 distributed for RMD
200000 Rolled to IRA

Bank B Distributed 10000 RMD for the IRA.

[Corduroy Frog]

Date of Determination

Oleander, there is an annual "date of determination" used by the payer, and the payer divides the value as of that date by the remaining life expectancy. From Page 13-23 of TTB, this date is Dec 31 of the year before the payout. TTB tells us in Chapter 28 when the recipient must receive the RMD, namely by April 1 after the close of a certain year.

Where this is relevant to your situation is that each of these custodians had to make this RMD based on the value of a certain date (which I believe to be Dec 31). This means that either Custodian 1 (pre-rollover) or Custodian 2 (after rollover) had a determination date with a value of zero. Unless there was a partial rollover, I don't see how a RMD could have been made from BOTH custodians.

[Kram BergGold]

My answer

RMD's are based on the value of the account on 12/31 of the prior year.
If the IRA had zero in it on 12/31/10 then his RMD should have been just for what was in the 401k on 12/31/10. However, unless one of these was distributed in mid to late Dec there is nothing he can do about it but pay the tax. There is no law about taking out extra. If his 60 days is still runnning he could redeposit the extra.

[WhiteOleander]

Thanks, I was thinking along the same lines. Especially since the balance of the IRA on 12/31/2010 was zero.

[Corduroy Frog]

RMD is unique

There is only one RMD amount, if the "M" stands for minimum. Any additional amounts distributed exceeds the minimum.

This means ideally each custodian should take the amount in the retirement account on 12/31/10, divide by the remaining life expectancy, and PRESTO!! the RMD should be prepared for distribution by each custodian. The taxpayer has the right to request more than the RMD.

Notice I said "ideally" above. The taxpayer has the right to mix the amounts among custodial distributions so long as the overall total value on 12/31/10 is calculated to arrive at an "overall" RMD which is met in total. This "mixing" feature allows the financial service industry to place the legal burden of meeting the RMD upon the recipient instead of the custodian. When many custodians disabled their RMD machinery in 2009 and didn't fix it last year, its amazing how quickly they claimed the burden was on the recipient.

[Roland Slugg]

Each IRA trustee is required to inform its IRA account owners of their RMD amounts for the current year, but the trustee will not (or should not) distribute the RMD or any other amounts unless and until asked to do so. Thus, your client must have requested the $10,000 sent to him by Bank B after his 401(k) funds were rolled into that bank. Besides, the RMD from an IRA worth $200,000 is about $11,700 for an 82-yo owner (divisor is 17.1), yet he received only $10,000. On the other hand the RMD from the 401(k) worth $225,000 for the same owner would only be a little over $13,000, yet he received $25,000 ... nearly twice the RMD amount. My guess is that the man knew what he was doing and asked for those amounts to be distributed to him.

[Burke]

Good sleuthing, Slugg!

[WhiteOleander]

Update:
Client went to Bank B. They agreed that since the IRA did not exist on 12/31/2010, there was no RMD for it. The client had taken the RMD from the 401k before he rolled it. They are issuing a corrected 1099R.

(one for Ripley's Believe It Or Not)

[Roland Slugg]

Why?

They are issuing a corrected 1099R.

Why??? If he got the $10,000, a 1099-R must be issued. The fact that he didn't need to get that distribution is irrelevant. Now, if he received that $10,000 less than 60-days ago and wants to return some or all of it back into the same account ... i.e. a rollover ... he can do that. But the $10,000 was distributed, so what's to "correct?"

(I still think your client is confused, or has simply changed his mind.)