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. Can I return funds to my Traditional IRA after taking a distribution?

    If you take a distribution from your Traditional IRA, you can roll over the amount to the same Traditional IRA or another ... Read Answer >>
Related Articles
  1. Retirement

    6 Important Retirement Plan RMD Rules

    Paying taxes is inevitable - that's why you need to learn about the rules for required minimum distributions.
  2. Retirement

    5 Ways To Lose Your Retirement Nest Egg

    These common mistakes can put your savings at risk. Find out how to avoid them.
  3. Retirement

    Avoiding Mistakes In Required Minimum Distributions (RMD)

    If you don't calculate your required minimum distributions accurately, you might have to pay an excise tax.
  4. Retirement

    Avoid the Most Common IRA Rollover Mistakes

    Avoid paying excess taxes by learning some simple transfer rules.
  5. Taxes

    Unexpected 1099-R Form: What To Do

    Did your IRA custodian report distributions you thought were non-reportable? Find out what went wrong.
  6. Retirement

    Tax Treatment Of Ineligible IRA Rollovers

    Eager to save for retirement? Learn how to avoid overpayment penalties.
  7. Financial Advisor

    Best Ways to Avoid RMD Tax Hits on IRAs

    If you want to avoid hefty tax penalties, read this cheat sheet on IRA required minimum distributions.
  8. Financial Advisor

    Strategic Ways To Distribute Your RMD

    We give you some tips on preserving your nest egg in the face of unavoidable withdrawals.
  9. Retirement

    It's December - Do You Know Where Your IRA Statements Are?

    Don't discard these important documents with your junk mail - they may affect your taxes.
  10. Retirement

    11 Things You May Not Know About Your IRA

    These little-known features will help you get the most out of your retirement savings.
RELATED TERMS
  1. IRA Rollover

    A transfer of funds from a retirement account into a Traditional ...
  2. Required Minimum Distribution - RMD

    The amount that Traditional, SEP and SIMPLE IRA owners and qualified ...
  3. Stretch IRA

    An estate planning concept that is applied to extend the financial ...
  4. Rollover IRA

    A special type of traditional individual retirement account into ...
  5. Rollover

    A rollover is when you do the following: 1. Reinvest funds from ...
  6. Traditional IRA

    An individual retirement account (IRA) that allows individuals ...
Hot Definitions
  1. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  2. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  3. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  4. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  5. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  6. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
Trading Center