RMD Distribution in wrong year

[tuna524]

Hi Everyone,

Participant first distribution calendar year was 2015 and wanted the distribution to take place at the end of December for tax purposes. Because of improper information and service provider error, the participant requested the distribution in December and it was processed in January. Although this is permissible because it is before April 1, the participant would like for that distribution to be 2015 income.

Does anyone have any experience with a situation like this? I'm leaning towards there being no remedy but wanted other opinions.

Thanks!

[jpod]

May I turn the tables? How are you only "leaning" towards that conclusion? What is it that only causes you to lean, rather than fall all the way down?

[tuna524]

I'm leaning because I don't know of any mechanism for this but it's hard to prove a negative.

[Mike Preston]

You jest, right?

[My 2 cents]

If it was processed and paid in January 2016, irrespective of the participant having wanted it to be a 2015 tax event, it's a 2016 tax event, right? One cannot go back in time and have the payout occur in 2015 if it didn't.

Where is the ambiguity here?

Also, it might have happened, rather than "incorrect information and service provider error", because the service provider's procedures only allow distributions on the first business day of a calendar month and the claim was not submitted early enough to make it into the December 1 distributions.

[tuna524]

The only thing that is interesting is that IRC 402(a) states that a participant includes the distribution as income in in the year in which it was distributed. This is different than the general rule of when it was received.

[My 2 cents]

The only thing that is interesting is that IRC 402(a) states that a participant includes the distribution as income in in the year in which it was distributed. This is different than the general rule of when it was received.

Not sure if I understand the distinction, especially in this context. If the service provider issued the payment in January 2016, it could not have been received in December 2015. If the service provider issued the payment in December 2015, it would have been reported on a 2015 Form 1099-R even if the payment itself was not received until January, but that is the opposite of what was wanted here.

The fact that the first mandatory distribution relates to 2015 would never serve, by itself, to make the distribution one that was distributed in 2015. Even though required for 2015, distributions made on or shortly before April 1, 2016 would unquestionably be taxed in 2016.

[ESOP Guy]

The only thing that is interesting is that IRC 402(a) states that a participant includes the distribution as income in in the year in which it was distributed. This is different than the general rule of when it was received.

Actually part of your issue here is you don't appear to understand what "received" means in this context. The IRS rule is consistent with the Constructive Receipt Rule.

https://www.law.cornell.edu/cfr/text/26/1.451-2

The moment the check is written the money was "set apart" for him he is considered to have received the funds. So the moment the distribution is made he did in fact receive the funds legally speaking. The fact the person didn't have physical possession of the check is irrelevant. Your comment indicates you think it could be important.

So for example if the check was written on 12/31/2015 and put in the mail on that day but the taxpayer didn't get the check until 1/4/2016 per the Constructive Receipt Rule the taxpayer "received" the funds on 12/31/2015.

Or as the IRS said and you noted in bold in "the year in which it was distributed". In the IRS's mind distributed and received always happen on the same day so it always happens in the same year.

So as you described the facts BOTH the distribution and receipt of the funds happened in 2016 so it is 2016 income.

The above link and explanation gives you the legal details behind all of this and I share it for that purpose.