RMD when IRA tranferred to different provider.

[Guest Thornton]

A client of mine wants to transfer his IRA from Bank A to Bank B. He is over 70 1/2 and began minimum distributions several years ago. Bank A will not transfer the account to Bank B without giving him the minimum distribution for 1999, even though it is not required to be made untill 12/31/99. What is Bank A's authority for this? Thank you.

[Alan Simpson]

The following are not eligible rollover distributions: (there are others not listed below)

1. Any distribution that is required under the minimum distribution rules.

2. Any distribution part of a series of substantially equal payments.

Also, since RMDs are calculated off of the 12/31/XX balance the new IRA trustee/custodian would not be able to ensure that the correct RMS has been taken for 1999 since it would have no records of the 12/31/98 account value.

[Kathy]

Furthermore, the proposed regulations under 401(a)(9) state that you may not transfer your required minimumd distribution. So, although your client could take the RMD from another IRA and it is not due until the end of the year, most of us who take the conservative approach won't allow a transfer of an RMD. Maybe someday when the regulations are finalized this will be addressed.

[BPickerCPA]

While the previous posts are correct, they address the question of ROLLOVERS, not TRUSTEE-TO-TRUSTEE transfers. A minimum distribution cannot be rolled over but there is nothing that prohibits a trustee to trustee transfer.

However as a practical matter, many custodians will not ACCEPT a trustee to trustee transfer if it means that they will have to make a distribution of that year's minimum distribution. But there is no basis for a custodian refusing to transfer the account to another institution until the that first custodian pays out the RMD.

Keep in mind that there is NO requirement that EACH IRA make an annual required distribution. If the taxpayer has an IRA in bank C, he can elect to take the entire RMD from _that IRA, and never touch the bank A IRA.

Bottom line is that if you speak to people at authority at the bank (not an easy task) you should be able to get your transfer done. I'm not sure that they can legally refuse it.

[Guest P A Weick]

Q&A G-3 of the Proposed 401(a)(9) Regs does provide authority for the transferring organization to withhold RMD prior to transferring the account in a trustee to trustee transfer. The transferring organization may then pay the RMD on or before the required date or pay it into an escrow account for that purpose. It does not provide authority for having the whole transfer held up.

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[Kathy]

I should clarify my point. We would never hold up the transfer of an IRA to a successor custodian who has officially accepted the transfer. We simply tell our shareholders not to transfer the RMD. (However, in the end we follow their specific written instructions. If they indicate they have taken the RMD from another IRA, we will go ahead and do it.)

[Guest J Singletary]

I don't know about you guys, but Prop. Reg. 1.408-8, A-7, seems to me to be pretty clear that an IRA trustee or custodian cannot transfer the current year's required minimum. We routinely refuse to transfer minimums to other IRAs.

If you know something I don't know, please let me in on it. I get really tired of enforcing this rule. Clients get pretty heated about it.