RMD and IRA Transfer Timing

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SeaShelleys
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RMD and IRA Transfer Timing

Post by SeaShelleys » Mon Dec 31, 2018 10:30 pm

Any discussion would be appreciated about RMD & IRA Transfer. Looking for clarification. I remember seeing that once you turn 70.5, if a RMD is required, a ROLLOVER could not be done until the RMD is taken. Does this also hold true for a TRANSFER?

In other words, can a person turning 70.5 in 2019 and taking a RMD in 2019, also do an IRA TRANSFER in 2019, without regard to timing one before the other? Does he have to take the RMD before he can transfer the IRA?

Would appreciate any links to where I can find more information.

Thank you.

mhalley
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Re: RMD and IRA Transfer Timing

Post by mhalley » Mon Dec 31, 2018 11:07 pm

I have a hard time with the difference between a rollover and a transfer. IANAL/CPA
I believe that you can do a trustee to trustee transfer before doing the RMD. The question was asked at the Ed Slott forum.

https://www.irahelp.com/forum-post/1125 ... e-transfer
. Obviously, RMDs are not eligible for rollover distribution purposes. But, are RMDs eligible for direct rollover (trustee-to-trustee) distribution purposes? ....


The full balance is eligible for transfer, since a trustee to trustee transfer is not considered a distribution and rollover. The clearest IRS explanation of this distinction is the following pasted section from the summary section of the 2002 IRS RMD Regulations: >>>>>> >>>>>>>>> Although the IRA to IRA transfer is not treated as a distribution for purposes of section 401(a)(9), in light of the fact that the required minimum distribution with respect to the transferor IRA can be taken from any IRA, the transferor IRA will be able to transfer the entire balance and will not be required to retain the amount of the required minimum distribution for the year. >>>>>> >>>>>>>>>> Note that this paragraph does not apply to Roth conversions. While these can be physically done by direct transfer, they are treated differently for reporting purposes as distributions and rollovers. Therefore, the RMD needs to be satisfied prior to doing a Roth conversion, even though it can be satisfied by taking the full RMD from any of the owner's TIRA accounts.

Topic Author
SeaShelleys
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Re: RMD and IRA Transfer Timing

Post by SeaShelleys » Tue Jan 01, 2019 7:48 am

Thank you for the link. There are also some other interesting posts in that forum that might prove useful in the future.

I wonder if there have been updates from the IRS since 2002. The discussion in the link about a RMD Trustee to Trustee Transfer, is from 2008 & the answer was based on 2002 IRS RMD Regulations. It makes sense to me, but wonder if it is still current.

Thanks again.

Silk McCue
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Re: RMD and IRA Transfer Timing

Post by Silk McCue » Tue Jan 01, 2019 8:02 am

SeaShelleys wrote:
Tue Jan 01, 2019 7:48 am
Thank you for the link. There are also some other interesting posts in that forum that might prove useful in the future.

I wonder if there have been updates from the IRS since 2002. The discussion in the link about a RMD Trustee to Trustee Transfer, is from 2008 & the answer was based on 2002 IRS RMD Regulations. It makes sense to me, but wonder if it is still current.

Thanks again.
I find it unlikely that there would be a regulation change on such a matter.

Is this an academic question or is it important to you to not have to take the RMD before transferring the IRA? If it is important what is your reasoning for needing to do so?

Cheers

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SeaShelleys
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Re: RMD and IRA Transfer Timing

Post by SeaShelleys » Tue Jan 01, 2019 8:52 am

No, not an academic question. It is important to me, to transfer before taking any RMD. I want to do a few QCDs from this IRA. And I want to do them before taking any RMD. The custodian does not do QCDs, so I want to transfer the entire IRA to Vanguard, where they will do the QCDs.

Silk McCue
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Re: RMD and IRA Transfer Timing

Post by Silk McCue » Tue Jan 01, 2019 9:10 am

Got it. This of course would have been a non issue a couple of weeks ago. I would proceed with the guidance provided and contact your current custodian tomorrow. Just be prepared to push back with confidence if they say the RMD must be taken first.

If necessary, I would further argue that you won’t be taking the RMD until 2020 as that is your right and that there is no mandatory RMD required in 2019.

Cheers

The Wizard
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Re: RMD and IRA Transfer Timing

Post by The Wizard » Tue Jan 01, 2019 9:31 am

My understanding is that you must complete your RMD for each year before you can move any of the rest of that tax deferred money to a different custodian.
So if you take care of this by the end of 2019, you'll be able to do QCDs in 2020, assuming you are over 70.5 years of age...
Attempted new signature...

The Wizard
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Re: RMD and IRA Transfer Timing

Post by The Wizard » Tue Jan 01, 2019 9:36 am

Silk McCue wrote:
Tue Jan 01, 2019 9:10 am
...If necessary, I would further argue that you won’t be taking the RMD until 2020 as that is your right and that there is no mandatory RMD required in 2019.
Good luck with the argument, but I doubt you will prevail.
But what if you told them you already took your entire RMD from a different custodian, since you kept your tIRA with two separate fund families?
I guess I don't know...
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Silk McCue
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Re: RMD and IRA Transfer Timing

Post by Silk McCue » Tue Jan 01, 2019 9:50 am

The Wizard wrote:
Tue Jan 01, 2019 9:36 am
Silk McCue wrote:
Tue Jan 01, 2019 9:10 am
...If necessary, I would further argue that you won’t be taking the RMD until 2020 as that is your right and that there is no mandatory RMD required in 2019.

Good luck with the argument, but I doubt you will prevail.

But what if you told them you already took your entire RMD from a different custodian, since you kept your tIRA with two separate fund families?
I guess I don't know...
Just trying to provide options that I would use if I was in the same position. If you have no legal requirement to withdraw the RMD in the year that you turn 70.5 I would think that would be a viable argument. If not, nothing ventured, nothing gained. It is no less likely than claiming, and not being able to substantiate that you had already taken the RMD from another custodian.

Cheers

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dodecahedron
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Re: RMD and IRA Transfer Timing

Post by dodecahedron » Tue Jan 01, 2019 9:52 am

SeaShelleys wrote:
Tue Jan 01, 2019 8:52 am
No, not an academic question. It is important to me, to transfer before taking any RMD. I want to do a few QCDs from this IRA. And I want to do them before taking any RMD. The custodian does not do QCDs, so I want to transfer the entire IRA to Vanguard, where they will do the QCDs.
Too bad about your current custodian´s policy.

Curious to learn that a custodian refuses to do QCDs. Would like to hear who it is and what the reasoning is behind their policy. It does sound like a potentially time-consuming task for the custodian so I can imagine why some would avoid it. On the other hand, it may be an important service to provide in order to promote goodwill and to compete for business.

Does your current IRA allow you to write checks on the accounts? My understanding is that if you write a check payable to a qualified charity, that may count as a QCD.

I was very happy to learn that Schwab (where I have accounts) recently enabled checkwriting privileges on IRA accounts specifically to facilitate QCDs. I hope that policy is still in place when I expect to need it (a few more years down the road.)

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SeaShelleys
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Re: RMD and IRA Transfer Timing

Post by SeaShelleys » Tue Jan 01, 2019 10:20 am

I'm not anticipating having an issue with the current custodian's willingness to transfer the IRA to Vanguard before I take any RMD for the year. Maybe I am mistaken about this though, as I have not yet tried to do the transfer.

After all, how would the current custodian even know whether or not I have another IRA, or whether or not I have taken my RMD from another IRA? What I am concerned about is the IRS RMD regulations. If I transfer the entire IRA to a Vanguard IRA before taking the QCDs or the RMD from any IRA, will that run afoul of the IRS?

Silk McCue
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Re: RMD and IRA Transfer Timing

Post by Silk McCue » Tue Jan 01, 2019 10:58 am

SeaShelleys wrote:
Tue Jan 01, 2019 10:20 am
I'm not anticipating having an issue with the current custodian's willingness to transfer the IRA to Vanguard before I take any RMD for the year. Maybe I am mistaken about this though, as I have not yet tried to do the transfer.

After all, how would the current custodian even know whether or not I have another IRA, or whether or not I have taken my RMD from another IRA? What I am concerned about is the IRS RMD regulations. If I transfer the entire IRA to a Vanguard IRA before taking the QCDs or the RMD from any IRA, will that run afoul of the IRS?
As long as you take out your RMDs according to IRS regulations and without respect to where they were held or when they were transferred then you cannot run afoul of the IRS. The process is unseen by them and is just background process noise. Balance on 12/31/2018 is X dollars and RMD is Y dollars. Withdraw Y dollars via RMD before April of the year after you turn 70.5 and you are golden with the IRS. QCD cannot be withdrawn before age 70.5.

Cheers

Alan S.
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Re: RMD and IRA Transfer Timing

Post by Alan S. » Tue Jan 01, 2019 12:39 pm

SeaShelleys wrote:
Tue Jan 01, 2019 10:20 am
I'm not anticipating having an issue with the current custodian's willingness to transfer the IRA to Vanguard before I take any RMD for the year. Maybe I am mistaken about this though, as I have not yet tried to do the transfer.

After all, how would the current custodian even know whether or not I have another IRA, or whether or not I have taken my RMD from another IRA? What I am concerned about is the IRS RMD regulations. If I transfer the entire IRA to a Vanguard IRA before taking the QCDs or the RMD from any IRA, will that run afoul of the IRS?

You will not have any IRS issues because a transfer is non reportable. The transferor firm does NOT issue a 1099R and the transferee firm does not issue a 5498. An RMD only occurs if there is a distribution reported on Form 1099R. These rules have existed for many years, even before the 2002 RMD Regs, so IRA custodians should not be confused about this.


Every once in awhile due to an internal coding error by the transferring firm, a 1099R will be issued for a transfer. But even if that occurred, you can get the 1099R rescinded/corrected. There are variations in requesting transfers, but be very careful to avoid referring to a distribution during any part of the process. You can do as many transfers as you wish, and due to the new restrictions on the number of rollovers, direct transfer has become the normal and preferred way to move IRA assets.

Topic Author
SeaShelleys
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Re: RMD and IRA Transfer Timing

Post by SeaShelleys » Tue Jan 08, 2019 11:11 am

Thank you, Alan S. So if I understand correctly, I can do a direct transfer of the IRA from custodian to custodian? And I can do the transfer before doing the QCD & the RMD? Thanks again.

RetiredCSProf
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Re: RMD and IRA Transfer Timing

Post by RetiredCSProf » Thu Jan 10, 2019 10:52 pm

I did this in 2018, just before turning 70.5, without any issues. I transferred a tIRA from one custodian to another before taking any QCDs or RMDs.

I had considered one other option, but chose not to pursue it: I could have taken an RMD from the fund I was planning to transfer and then converted that fund to a Roth IRA, before taking any QCDs or RMDs from my other tax-deferred accounts.

Alan S.
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Re: RMD and IRA Transfer Timing

Post by Alan S. » Thu Jan 10, 2019 11:18 pm

SeaShelleys wrote:
Tue Jan 08, 2019 11:11 am
Thank you, Alan S. So if I understand correctly, I can do a direct transfer of the IRA from custodian to custodian? And I can do the transfer before doing the QCD & the RMD? Thanks again.
Yes, that is correct.

Alan S.
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Re: RMD and IRA Transfer Timing

Post by Alan S. » Thu Jan 10, 2019 11:30 pm

RetiredCSProf wrote:
Thu Jan 10, 2019 10:52 pm
I did this in 2018, just before turning 70.5, without any issues. I transferred a tIRA from one custodian to another before taking any QCDs or RMDs.

I had considered one other option, but chose not to pursue it: I could have taken an RMD from the fund I was planning to transfer and then converted that fund to a Roth IRA, before taking any QCDs or RMDs from my other tax-deferred accounts.

This might sound questionable to some, but you are absolutely correct about the second option, although you probably meant "that TIRA" rather than "that fund".


The IRS Reg that enables this is 1.408-8 Q 4, key term highlighted in red:

Q-4. What portion of a distribution from an IRA is not eligible for rollover because the amount is a required minimum distribution?

A-4. The portion of a distribution that is a required minimum distribution from an IRA and thus not eligible for rollover is determined in the same manner as provided in A-7 of § 1.402(c)-2 for distributions from qualified plans. For example, if a minimum distribution is required under section 401(a)(9) for a calendar year, an amount distributed during a calendar year from an IRA is treated as a required minimum distribution under section 401(a)(9) to the extent that the total required minimum distribution for the year under section 401(a)(9) for that IRA has not been satisfied. This requirement may be satisfied by a distribution from the IRA or, as permitted under A-9 of this section, from another IRA.

So if you took the total RMD for all your IRAs out of "that IRA" and did nothing else, your RMD for all is satisfied under the IRA RMD aggregation rules. But you preempt that if you convert the RMD amount for the other two IRAs, because once you satisfy the RMD for "that IRA" you can roll the rest of the account over and a conversion is a rollover. Of course, if you do this you still have to take the rest of your total RMD from the remaining TIRA accounts.


Can this be useful? Yes, if you want to convert early in the year and delay most of your RMD to later on, perhaps because you cannot do a QCD until later on because you are not yet 70.5. However, you might have to do some direct transfers first to get the account balances to be workable for the amount you want to convert early on.

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