Phil Royce

Mike is correct. See the IRS Instructions for Forms 1099-R and 5498. This exact situation is discussed in the instructions. On the 5498 side, the IRA custodian/trustee reports the RMD amount as a regular contribution in box 1 of the 5498 and the rest as a rollover in box 2. The regular contribution is an excess and then is removed under the rules for correcting an excess. The RMD from the plan was satisfied when the money was distributed from the plan, so as Mike says, the plan is okay from a 401(a)(9) perspective. Also, the plan must correct its 1099-R filing to show the RMD amount as a normal taxable distribution to the participant for 2017, and the rest as direct rollover to the IRA - so two Forms 1099-R will be required. That will fix the original error. As far as the second issue, forcing an RMD from the contribution made in 2017, I think that is a mistake, but am not sure how to fix it after the fact in this subsequent tax year. Can the plan be made whole at this late date under rules? It can't really be done in the IRA world, but perhaps there is a way to do it in the qualified plan world.

As far as Ed Slott's article, it is fine as far as it goes. We have no guidance from IRS addressing this issue, and probably won't get any before year-end. I believe conversions done in taxable year 2017 can still be recharacterized by the October 15, 2018 deadline, as that transaction applies to taxable year 2017 - not 2018. In fact, the taxpayer must attach an explanation of the transaction to his/her 2017 return. However, if there is no IRS guidance before year end, and if there is a significant amount of money involved, taxpayers will have to decide whether to take a chance that the law will be interpreted that way. This can be a catch-22 for some individuals, because they may very well want to convert in 2017 for tax reasons, but still have the option to recharacterize in 2018 if their converted assets lose value.

I disagree with both of Luke Bailey's posts. The second one first: Conversions will still be allowed after 2017, they just cannot be recharacterized. Now for the first one: Both conversions from traditional to Roth and qualified rollovers from employer-sponsored plans to Roth IRAs will not be eligible for recharacterization. Section 408(A)(d)(3) specifically mentions eligible retirement plans under Section 402(c)(8)(B), which includes all qualified employer plans that can have rollovers done to Roth IRAs. Therefore, a qualified rollover to a Roth IRA from such a plan will not be eligible for recharacterization to a traditional IRA beginning in 2018. The pertinent text of the law:: (a) IN GENERAL. — Section 408A(d)(6)(B) is amended by adding at the end the following new clause: (iii) CONVERSIONS. — Subparagraph (A) shall not apply in the case of a qualified rollover contribution to which subsection (d)(3) applies (including by reason of subparagraph (C) thereof). (b) EFFECTIVE DATE. — The amendments made by this section shall apply to taxable years beginning after December 31, 2017.

Agree with Flyboyjohn. What may happen is attorney for the trust may ask you to treat the trust beneficiaries as the beneficiaries of the plan. Generally this has only been allowed through PLR, and only a handful of those, and those only dealing with IRAs. If trust is a qualified trust under the above cited reg, they could elect a direct rollover to an inherited IRA for the trust. Then it is the IRA custodian's problem.

We don't know for sure, as IRS has not issued any guidance yet on this issue. However, IRS Notice 2005-92 covered this stuff for Hurricane Katrina. Can use either Code 2 or Code 1 if under age 59 1/2 - depends on whether you accept the individual's representation that the hurricane distribution rule applies. Hurricane distribution recipients used Form 8915 to report the distribution and any subsequent repayments.

If she rolls the RMD into an IRA, then that portion of the rollover is reported by the IRA custodian as a regular IRA contribution in box 1 of Form 5498. The plan must issue two Forms 1099-R - one showing the amount eligible for rollover and the other showing the RMD as taxable distribution. She would have until her tax-filing due date, including extensions, to correct the ineligible contribution to the IRA by removing it under the rules for correcting excess contributions. This information can be found in the IRS Instructions for Forms 1099-R and 5498. For the contribution part it is in the 5498 section under the heading "Corrected Form 5498". On the distribution side it is in the 1099-R section under the heading "Corrected From 1099-R".