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)

RELATED FAQS
  1. What are the best ways to sell an annuity?

    The best ways to sell an annuity are to locate buyers from insurance agents or companies that specialize in connecting buyers ... Read Full Answer >>
  2. Can you buy penny stocks in an IRA?

    It is possible to trade penny stocks through an individual retirement accounts, or IRA. However, penny stocks are generally ... Read Full Answer >>
  3. Can I use my IRA to pay for my college loans?

    If you are older than 59.5 and have been contributing to your IRA for more than five years, you may withdraw funds to pay ... Read Full Answer >>
  4. Can my IRA be used for college tuition?

    You can use your IRA to pay for college tuition even before you reach retirement age. In fact, your retirement savings can ... Read Full Answer >>
  5. Why are IRA, Roth IRAs and 401(k) contributions limited?

    Contributions to IRA, Roth IRA, 401(k) and other retirement savings plans are limited by the IRS to prevent the very wealthy ... Read Full Answer >>
  6. How do you calculate penalties on an IRA or Roth IRA early withdrawal?

    With a few exceptions, early withdrawals from traditional or Roth IRAs generally incur a tax penalty equal to 10% of the ... Read Full Answer >>
Related Articles
  1. Professionals

    How to Protect Elderly Clients from Predators

    Advisors dealing with older clients face a specific set of difficulties. Here's how to help protect them.
  2. Professionals

    Social Security 'Start, Stop, Start' Explained

    The start, stop, start Social Security strategy is complicated. Here's what retirees considering it need to consider.
  3. Retirement

    Strategies for a Worry-Free Retirement

    Worried about retirement? Here are several strategies to greatly reduce the chance your nest egg will end up depleted.
  4. Professionals

    Your 401(k): How to Handle Market Volatility

    An in-depth look at how manage to 401(k) assets during times of market volatility.
  5. Professionals

    How to Build a Financial Plan for Gen X, Y Clients

    Retirement is creeping closer for clients in their 30s and 40s. It's a great segment for financial advisors to tap to build long-term client relationships.
  6. Professionals

    Don't Let Your Portfolio Be Trump'd by Illiquidity

    A look at Donald Trump's statement of finances and the biggest lesson every investor can learn.
  7. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  8. Retirement

    Maxing Out Your 401(k) Is Profitable: Here's Why

    It's shocking, but most American workers (73%) have no 401(k) retirement funds. Start saving now to anchor your retirement.
  9. Professionals

    Top Questions to Ask When Choosing a Robo-Advisor

    Think a robo-advisor might be the right choice for you? Be sure to ask these questions first.
  10. Professionals

    Top Retirement Hack? Start with a Lifestyle Change

    Instead of going through the usual retirement planning steps, some people are focusing on fostering a lower cost lifestyle from the start.
RELATED TERMS
  1. Qualified Longevity Annuity Contract

    A Qualified Longevity Annuity Contract (QLAC) is a deferred annuity ...
  2. See-Through Trust

    A trust that is treated as the beneficiary of an individual retirement ...
  3. Backdoor Roth IRA

    A method that taxpayers can use to place retirement savings in ...
  4. Current Service Benefit

    The amount of pension benefit accrued by an employee who had ...
  5. Self Invested Personal Pension (SIPP)

    A tax-efficient retirement savings account available in Great ...
  6. Senior Move Manager

    Senior move managers (SMMs) help seniors downsize and relocate ...

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!