How to satisfy RMD on worthless IRA

[Guest kprhok]

A client has one IRA. Since 12/31/08 the stock held in the IRA has become worthless. The RMD calculation, based on the 12/31/08 account balance is greater than the IRA value, which I understand to be zero at this point. Nothing to distribute. Is there a regulation or other official guidance that addresses this situation?

I feel like I'm missing something that is probably quite obvious to most - Guidance is appreciated!

[jpod]

Assuming it is truly worthless, i.e., $0, what exactly would you advise the client to do other than to do nothing, regardless of what the regs say or don't say? Assuming it may not be truly worthless, the advice would be to take the asset out of the IRA in kind. Some coordination with the trustee/custodian as to the value to report on the 1099R would be necessary.

[Guest kprhok]

Assuming it is truly worthless, i.e., $0, what exactly would you advise the client to do other than to do nothing, regardless of what the regs say or don't say? Assuming it may not be truly worthless, the advice would be to take the asset out of the IRA in kind. Some coordination with the trustee/custodian as to the value to report on the 1099R would be necessary.

I thought that some type of reporting would be needed to prevent any problems. Taking in kind with a 1099 seems to be a good approach. Thanks.

[Bird]

I think you're right to raise the question. There's no official guidance that I know of that says the RMD is the lesser of the calculated amount or the total value of the account when distributed.

So, what to do? I guess distribute it in-kind and forget about it, but there's no assurance that complies with the RMD rules.

[jpod]

Don't get me wrong, but you folks are over-thinking this. If the value of the account has dropped to zero, the purpose of the MRD rules has been served: preventing a perpetual tax-deferral. Now, what some people view as "zero" may not really be "zero," so in that event you take the asset in-kind and hope you can convince the custodian that the value to report on the 1099R is something to your liking.

[Guest Sieve]

In that case, you probably want to take the entire amount out in kind, pay no taxes (hoping the 1099-R comes out "to your liking"), and hold the asset outside of the IRA to take advantage of eventual capital gains taxes (rather than ordinary income taxes) if the asset happens to appreciate in value in the future.

I would suggest, however, in the event the IRA assets are worthless, that you would be required to take out a portion of the asset based on the MRD calculation you would have had to perform anyway--i.e., divide the asset by the appropriate life expectancy and remove at least that portion of the asset from the IRA.

[Guest mjb]

I think you're right to raise the question. There's no official guidance that I know of that says the RMD is the lesser of the calculated amount or the total value of the account when distributed.

So, what to do? I guess distribute it in-kind and forget about it, but there's no assurance that complies with the RMD rules.

Reg 1.401(a)(9)-5Q/A-1(a) "However the RMD amount will never exceed the entire account balance on the date of distribution"

[Bird]

Reg 1.401(a)(9)-5Q/A-1(a) "However the RMD amount will never exceed the entire account balance on the date of distribution"

There you go! Thanks for finding it.

[Guest jimlmathis]

I think you're right to raise the question. There's no official guidance that I know of that says the RMD is the lesser of the calculated amount or the total value of the account when distributed.

So, what to do? I guess distribute it in-kind and forget about it, but there's no assurance that complies with the RMD rules.

Reg 1.401(a)(9)-5Q/A-1(a) "However the RMD amount will never exceed the entire account balance on the date of distribution"

can you give me a link to this reg . I can find Reg 1.401(a)(9) but it stops at q3

Thanks

[J Simmons]

I think you're right to raise the question. There's no official guidance that I know of that says the RMD is the lesser of the calculated amount or the total value of the account when distributed.

So, what to do? I guess distribute it in-kind and forget about it, but there's no assurance that complies with the RMD rules.

Reg 1.401(a)(9)-5Q/A-1(a) "However the RMD amount will never exceed the entire account balance on the date of distribution"

can you give me a link to this reg . I can find Reg 1.401(a)(9) but it stops at q3

Thanks

Try this Link