RMD not processed before rollover

[Vlad401k]

Let's say a participant is over 70 1/2 and took a full distribution as a rollover and let's say that his RMD was not processed by mistake. What would be the correction method for this mistake if the participant already deposited the check into the receiving IRA? Is amending the 1099-R to reflect that a portion of the distribution is an RMD and requesting the participant to take out the excess from the IRA the only method?

 

Thanks.

[Bird]

That's the only correct method that I know of.  Just be sure that the participant knows enough to withdraw it as an excess contribution, not a regular distribution, otherwise he gets 2 1099-Rs showing a taxable distribution.

The incorrect alternative is to code the full distribution as a rollover, and tell the participant to take the RMD from the IRA as a regular distribution.  I'm not advocating it but it's probably less likely to get screwed up.  We had to go this route last year, through a combination of someone knowing enough to be dangerous, not paying attention, and idiocy. 

[CJ Allen]

The IRS, generally, considers the distribution from the plan as satisfying the RMD requirement, except the RMD was erroneously rolled over.  The distributing plan needs to show the RMD distribution separate from the rollover distribution, and communicate to the participant the necessary information to remove the ineligible rollover from the receiving firm.  There may be difficulty if the distributing IRA wants to, additionally, tax the distribution.

[FPGuy]

The potential for a 1099 in the amount of the RMD from both the QP and IRA is concerning. If the RMD and rollover (and by rollover I assume we are talking about a trustee-to-trustee/custodian transfer) were both in respect of this year, could you transfer the money back into the QP and get a re-do?

 

[CJ Allen]

That's possible, but not all companies will allow the money back to the plan.  However, if the receiving institution understands it's an excess contribution / ineligible rollover to be sending back, there's a very good chance they will distribute as a non-deductible excess contribution with no taxation.