Rmd

[gman]

Can a taxpayer take a distribution from a 401-k large enough to cover both RMD's from 401k and IRA? or must distribution
be taken seperately from IRA and 401 k

thanks

[New York Enrolled Agent]

Can a taxpayer take a distribution from a 401-k large enough to cover both RMD's from 401k and IRA? or must distribution
be taken seperately from IRA and 401 k

thanks

The latter of the two questions.

[gman]

thanks, How about like this

Husband passes in 2013. All distributions correctly taken in 2013. In 2014 wife takes total from walmart 401k(less 20% federal tax) and combines with deceased husbands IRA. New custodian (compass bank) of the combined 401k and IRA tells wife no distribution is needed in 2014 because the distribution(20%) from walmart covered the RMD from 2014. Is that correct or did there need to be one take from deceased husbands IRA?

[Roberts]

Are you saying they rolled the 401-k into the IRA yet they took the distribution from the 401k PRIOR to the rollover? Even though the owner was dead already?

[gman]

I am speaking with a daughter and she said the 401 k belongs to the Wife. The wife inherited the IRA in 2013 when Husband died.
Walmart sent check to wife with her distribution less 20% She put that check and transferred the IRA to compass in 2014. She was told she met her RMD with the amount withheld from Walmart(20%). What do you think?

[Burke]

Your first post indicated she combined the two retirement plans into one IRA? And yes, the Walmart distribution may satisfy the RMD required from both. You would have to do the calculation.

[Roland Slugg]

Regarding your first post:

Can a taxpayer take a distribution from a 401-k large enough to cover both RMD's from 401k and IRA?

No. The distribution requirements are covered by two different sections of the IRC ... §401(a)(9) for the 401(k), a "qualified plan," and §408(a)(6) for the IRA. Neither can be used to satisfy the distribution requirement of the other.

Regarding your second post, your facts are unclear ... at least to me. If the Walmart 401(k) was the wife's, not the husband's, and she took a complete distribution and THEN rolled-over the after-tax proceeds into an IRA, that would qualify for rollover treatment. The 20% portion withheld as FWHT was not rolled over, however, so that much will be taxable on her 2014 tax return. If she was under 59½ at the time, it will also be subject to the §72(t) 10% penalty. Furthermore, if the wife was age 70½ or more in 2014, then she also had a separate RMD obligation on the IRA she inherited from her husband.

If someone at the bank told her the Walmart 401(k) distribution satisfied both RMDs, then she was misinformed. Apparently it was this sequence of events and advice that led to your first post above. It's a pity the woman didn't seek advice from a qualified adviser in advance, as it would have been easy to avoid the mistakes that were made.

Now that the year 2014 has ended, it's too late to correct everything. Nevertheless, you may wish to seek IRS waiver/abatement of the IRA penalty for 2014, explaining how the woman received erroneous advice from the bank, and also pointing out ... assuming this is true ... that the taxable amount reported on her 2014 tax return exceeds the RMDs for her IRA and her 401(k) combined.

[buzzardbreath]

Withheld tax is not RMD

Husband passes in 2013. All distributions correctly taken in 2013. In 2014 wife takes total from walmart 401k(less 20% federal tax) and combines with deceased husbands IRA. New custodian (compass bank) of the combined 401k and IRA tells wife no distribution is needed in 2014 because the distribution(20%) from walmart covered the RMD from 2014. Is that correct or did there need to be one take from deceased husbands IRA?

Facts are incomplete to determine whether the RMD is met or is even required. However, if an RMD is required, it must be satisfied by the gross amount of the distribution. The 20% tax withholding is irrelevant with respect to satisfying the RMD.

[gman]

Withholding

The 20% withholding cannot satisfy the RMD, correct??

[Burke]

I am now totally confused. What exactly are the sequence of events? Did she or did she not combine the two plans into one IRA?

The RMD is based on the gross amount withdrawn, so the 20% withholding tax is included in, and is part of, the RMD amount. If she took a distribution, and then attempted to roll it over into another plan, then she may not have rolled over the full distribution if 20% was withheld for taxes.

In re-reading your posts, it is unclear just who the 401-k belonged to. Was it her plan with her employer?

[gman]

20%

The 20% was not rolled over, she invested the amount of the check only. So can that 20% be her RMD?

[Corduroy Frog]

Not on the face of it

Withholding by its own status does not satisfy RMD. Only the amount of distribution can satisfy.

However, if RMD requirement is $5,000, and there is a $25,000 distribution with $5,000 withholding,
then only $20,000 is rolled over? Then there is deemed to be a $5,000 distribution which satisfies
the RMD. The RMD is satisfied by co-incidence, but not by the withholding on its own merit.

[Burke]

I agree.

I am going to make some assumptions here:

1. A total distribution was made from the 401(k) belonging to the wife in 2014, from which 20% withholding was made and sent to the IRS under her SSN.
2. She subsequently rolled over this distribution (less the withholding) into the IRA received from her husband, which she is treating as her own.
3. The wife is over age 59 1/2, so no penalty is incurred from the 401(k) distribution.
4. No distribution was made from the IRA in 2014.

Since the 401(k) withholding was not rolled over, then that part is deemed a distribution. Whether or not this meets the RMD requirements from the 401(k) depends on the amount required to meet the RMD. You must use the valuation of the 401(k) as of 12/31/13 to determine that amount.

The RMD (assuming one is necessary) from the IRA is also based on its valuation as of 12/31/13.

Whether RMD's are even necessary at all is determined by the ages of the taxpayers, and/or whether or not the deceased husband was already receiving RMD's, which we still do not know.