What are the rules and reporting requirements for a rollover of a required minimum distribution (RMD)?

By Denise Appleby AAA
A:

An RMD may be transferred between IRAs, but it may not be rolled over once distributed. If the RMD amount is rolled over to an IRA, it will be treated as an ineligible rollover contribution and will therefore be subject to a 6% excise penalty for each year it remains in the IRA.

The RMD is deemed to have been distributed when the amount leaves the first IRA.

The reporting requirements for the rollover of an RMD to an IRA and its subsequent removal are as follows:

  • The first custodian must report the RMD amount as a regular distribution on IRS Form 1099-R. No special designation is required on Form 1099-R to distinguish the amount as an RMD; instead, it is reported much like any other regular distribution from the IRA. The IRA owner should include the amount in income the year that this 1099-R is issued. In other words, the IRA owner must treat the amount as if it were not rolled over to another IRA.
  • The second custodian (the custodian of the IRA to which the amount was rolled over) reports the ineligible rollover on IRS Form 5498. However, because the amount representing the RMD is not rollover eligible, it is treated as an excess contribution and the IRA owner must, therefore, remove the amount as a return of excess contribution from the IRA by tax-filing deadline, including extensions for the year the amount was rolled to the IRA.
  • The second custodian reports the return of excess distribution on IRS Form 1099-R. This amount is reported as a nontaxable distribution, which prevents the amount from being taxed twice. However, any earnings attributed to the ineligible rollover amount must be removed and will be taxable.

To read more about IRA rollovers, read Strategic Ways To Distribute Your RMD, Exceptions To The 60-Day Rollover Rule and Avoiding RMD Pitfalls.

This question was answered by Denise Appleby
(Contact Denise)

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