RMD/1099-R Reporting

[Doghouse]

Is there anything in the way a 1099-R for an RMD is completed that would clue the IRS and/or the participant that the distribution was in fact an RMD, and thus not eligible for rollover?

Any help appreciated.

[My 2 cents]

Wouldn't that be more appropriately addressed at the time the distribution was being made, rather than the beginning of the following calendar year?

Perhaps your question is more along the lines of "Is there anything in the way a 1099-R is coded to clue the IRS in to the fact that the distribution, rolled over by the recipient, was not eligible for rollover?" If a participant receives a RMD and tries to avoid current taxation by rolling it over after the fact to an IRA, perhaps it would only come to light upon audit.

In a more perfect world, the plan administrator, in making a required minimum distribution to a participant, would be aware that it is not eligible for rollover, and the communications to the participant would make that clear.

[BG5150]

Is there anything in the way a 1099-R for an RMD is completed that would clue the IRS and/or the participant that the distribution was in fact an RMD, and thus not eligible for rollover?

Any help appreciated.

Why would the IRS care if it was eligible for rollover?

[Doghouse]

So, in a word, the answer is "no".

[My 2 cents]

It is my understanding that an RMD = amount that must be taken as a taxable distribution in a year, but if it was rolled over, the taxpayer would not be declaring any of it as taxable for the year of distribution and thus paying no taxes on the RMD. How could the IRS not care?

[GMK]

Yes, the answer is no.

The recipient would have to pay the taxes on the RMD, since the taxable amount would be listed on the 1099-R.

But off hand, I don't see any benefit to then pretending it's pretax money, for example, by doing a 60-day rollover. Just have to pay taxes on it again when you take it out of the IRA.

[ESOP Guy]

It is my understanding that an RMD = amount that must be taken as a taxable distribution in a year, but if it was rolled over, the taxpayer would not be declaring any of it as taxable for the year of distribution and thus paying no taxes on the RMD. How could the IRS not care?

I believe your understanding is incorrect. Since RMDs are not eligible for a rollover there is not rollover. If you deposit and RMD in an IRA what I have always understood happened is this: You took a taxable RMD and then made a contribution to the IRA. The taxable status of the contribution to the IRA is subject to the IRA contribution rules.

The other way to see it is an error has been made that needs to be corrected.

But I don't believe you can ever correctly say an RMD has been rolled over to an IRA.

[Bird]

I believe the full question being asked, but in a more subtle way, is: "If a participant receives an RMD, which is not eligible for rollover, but they roll it over anyway, will the IRS know?"

I don't think there is a direct way that such a transaction would be flagged. Of course there are a lot of fraudulent things that can be done that can be gotten away with.

[My 2 cents]

I did not mean to imply that one could roll over an RMD. The clear answer is no. My point was that an RMD is not supposed to be rolled over - the recipient is supposed to pay taxes on it, and any attempts to roll the money into an IRA and treat it as not currently taxable would be an error, at best (at worst, tax fraud).

The impression I got from the original post is that the recipient wanted to roll the RMD over and thus further defer taxes, and it they did, is there a red flag on the 1099-R that would quickly reveal to the IRS that the amount reported on the 1099-R was an RMD? The 1099-R would presumably show the distribution as a normal distribution that was fully taxable (since there does not seem to be a specific code for RMDs from a qualified plan or a non-Roth IRA). Any rollover would have to be after receipt, not direct since (one presumes) the administrator of the plan would be well aware that part or all of the distribution being made was an RMD and, as such, not eligible for rollover.

Does the IRA provider have any obligation to determine that a 60-day rollover being submitted was not an RMD before issuing a reporting form showing it as a rollover?

I do agree with Bird that there may be some acts that go undetected. Does the IRS cross-check dependent Social Security Numbers with the Social Security Administration to catch people who make up SSNs so they can declare their pets as dependents? If the IRS chooses to look into the series of transactions involving the RMD and the rolloever, there would seem to be a good chance that the only way it would fly would be if it was declared as taxable income and an IRA contribution, offsetting at least some of the taxable income (but on different lines of the 1040). If the IRS became convinced that the recipient, contrary to the rules, knowingly rolled the money over to try to keep from paying taxes due, it might not go so well.