RMD Calculation when funds between accounts on Dec 31 calculation date

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CharacterCounts
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RMD Calculation when funds between accounts on Dec 31 calculation date

Post by CharacterCounts »

Vanguard Trad'l IRA Money left VG prior to 12/31/23 and didn't arrive at Trad'l TSP account until after 12/31/23. Therefore, the transfer amount was not included in either the VG 12/31/23 calculation for its 2024 RMD or the TSP 12/31/23 calculation for its 2024 RMD. The VG tIRA account was left with a 0 balance. Should I calculate the VG tIRA RMD based on the amount transferred to TSP and add it to the TSP RMD and take the total 2024 RMD from TSP? This is essentially what I think TSP would have done had they received the VG funds prior to the 12/31/23 RMD calculation date. Thoughts and/or citations appreciated.
Jack FFR1846
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Re: RMD Calculation when funds between accounts on Dec 31 calculation date

Post by Jack FFR1846 »

I don't know how to designate an RMD to a specific account, but I'm a big safety net guy. I would remove that amount from the TSP and put a note into your tax returns that explains that funds at VG were gone on 12/31 and that amount was removed from the TSP and tax paid on that amount in addition to other RMD removed from the TSP.
Bogle: Smart Beta is stupid
RetiredAL
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Re: RMD Calculation when funds between accounts on Dec 31 calculation date

Post by RetiredAL »

Jack FFR1846 wrote: Tue Oct 29, 2024 8:07 pm I don't know how to designate an RMD to a specific account, but I'm a big safety net guy. I would remove that amount from the TSP and put a note into your tax returns that explains that funds at VG were gone on 12/31 and that amount was removed from the TSP and tax paid on that amount in addition to other RMD removed from the TSP.
I concur with Jack. Play it safe. Do your RMD based on the transfer $ amount because that is what would have been in the account 12/31 if no transfer had occurred.

Does the IRS ever reconcile the F-5498's to the 1099R's? I'd save any and all records relating to the transfer, including before and after statements from both VG and TSP.
Asyouwish
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Re: RMD Calculation when funds between accounts on Dec 31 calculation date

Post by Asyouwish »

Does the IRS ever reconcile the F-5498's to the 1099R's? I'd save any and all records relating to the transfer, including before and after statements from both VG and TSP.
Yes they do for some things. Rollovers, Roth conversions, contributions being deducted. The 1099-R is matched to the 1040 and the 5498 if needed to verify a rollover or Roth conversion or IRA deduction. The Automated Underreporter program CP2000 notices do exactly that.
MarkNYC
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Re: RMD Calculation when funds between accounts on Dec 31 calculation date

Post by MarkNYC »

For purposes of the RMD calculation, it states on page 7 of IRS Pub. 590-B:

"Outstanding rollovers. The IRA account balance is
adjusted by outstanding rollovers that aren't in any account at the end of the preceding year.
For a rollover from a qualified plan or another IRA that
wasn't in any account at the end of the preceding year, increase the account balance of the receiving IRA by the
rollover amount valued as of the date of receipt."

So just increase the 2024 RMD amount from the TSP by what would have been the RMD amount from the VG IRA. In the unlikely event that the IRS raises questions, you can explain how and why the full RMD amount for the year was taken from the TSP.
Topic Author
CharacterCounts
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Re: RMD Calculation when funds between accounts on Dec 31 calculation date

Post by CharacterCounts »

Thanks to all for the quick responses and guidance. Also, really appreciate the MarkNYC citation and direction. I plan to follow the guidance in the citation.
Alan S.
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Re: RMD Calculation when funds between accounts on Dec 31 calculation date

Post by Alan S. »

The following IRS Reg 1.401(a)(9)-7(b) is more specific for how the TSP should calculate the 2024 RMD:
(b) Treatment of rollover by receiving plan. If an amount is distributed by one plan (distributing plan) and is rolled over to another plan (receiving plan), the benefit of the employee under the receiving plan is increased by the amount rolled over for purposes of determining the required minimum distribution for the calendar year following the calendar year in which the amount rolled over was distributed. If the amount rolled over is received after the last valuation date in the calendar year under the receiving plan, the benefit of the employee as of that valuation date, adjusted in accordance with § 1.401(a)(9)-5(b), is increased by the rollover amount valued as of the date of receipt. In addition, if the amount rolled over is received in a different calendar year from the calendar year in which it is distributed, the amount rolled over is deemed to have been received by the receiving plan on the last day of the calendar year in which it was distributed.
In other words, the TSP should increase their 12/31/2023 balance by the amount of the rollover.

I assume that the RMD for all IRAs had been satisfied for 2023 prior to the direct rollover. If not, there is a different problem in that the portion of the TSP rollover that represented the 2023 IRA RMD must be reported as a taxable IRA distribution in 2023, and that same amount must be removed from the TSP as an excess amount with allocated gain or loss. This becomes a major reporting hassle.
RetiredAL
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Re: RMD Calculation when funds between accounts on Dec 31 calculation date

Post by RetiredAL »

Asyouwish wrote: Wed Oct 30, 2024 8:08 am
Does the IRS ever reconcile the F-5498's to the 1099R's? I'd save any and all records relating to the transfer, including before and after statements from both VG and TSP.
Yes they do for some things. Rollovers, Roth conversions, contributions being deducted. The 1099-R is matched to the 1040 and the 5498 if needed to verify a rollover or Roth conversion or IRA deduction. The Automated Underreporter program CP2000 notices do exactly that.
I asked about the reconcile because it seem some people have gone for years with missing RMD's without it getting getting flagged. Usually it's some family member discovering it when working on cleaning up other record and/or tax discrepancy's.

In fact, I don't think I have never heard of someone here saying they got a CP2000 relating to a missing RMD. If someone has, please state so.
Alan S.
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Re: RMD Calculation when funds between accounts on Dec 31 calculation date

Post by Alan S. »

RetiredAL wrote: Wed Oct 30, 2024 6:20 pm
Asyouwish wrote: Wed Oct 30, 2024 8:08 am

Yes they do for some things. Rollovers, Roth conversions, contributions being deducted. The 1099-R is matched to the 1040 and the 5498 if needed to verify a rollover or Roth conversion or IRA deduction. The Automated Underreporter program CP2000 notices do exactly that.
I asked about the reconcile because it seem some people have gone for years with missing RMD's without it getting getting flagged. Usually it's some family member discovering it when working on cleaning up other record and/or tax discrepancy's.

In fact, I don't think I have never heard of someone here saying they got a CP2000 relating to a missing RMD. If someone has, please state so.
Yes, active enforcement of RMD rules has been almost non existent from the IRS in the past. Plan administrator's do a good job, much better than IRA owners, so RMD shortfalls are mostly confined to IRAs. IRA custodians efforts to enforce RMDs is limited because of the RMD aggregation rules in which the total RMD can be satisfied from any combination of IRAs, and a given custodian does not know about other IRA accounts, and cannot force out distributions from the IRA they are custodian for.

Inherited IRA RMDs have been even worse than owned RMDs due to complexity (just increased again by the Secure Act). The IRS knows that RMD failures need to be reduced, and they now have more staff hired and trained than in the past, so I would not assume that enforcement will remain as deficient.

Another factor is that the prior 50% excess accumulation tax was confiscatory, making the IRS less likely to levy it. This tax has now been reduced to 25%, and 10% if corrected within a couple years. This reduction may make it less likely that the IRS will waive the penalty entirely when the taxpayer self corrects and files a 5329 before the IRS alerts to the shortfall.

Will have to wait and see how this develops.
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