Can an aggregate RMD be done for two 403(B)s?

[sandy4042]

It seems from my reading that unlike 401(K)s, the RMDs for each 403(B) can be calculated separately, added together, then the aggregate RMD can be withdrawn from one 403(B) account.

The wrinkle is one of the 403(B)s has been rolled over, without its RMD being taken, into an IRA.  As a correction, I would like to take the RMD that SHOULD have been taken from the other 403(B), along with its RMD.  The custodian of the rolled over 403(B) is saying that the lack of taking its RMD necessitates filing 5329 (IRA Return of Excess Contribution) and a request of waiver penalty letter, AND withdrawing the RMD and its possible earnings as soon as possible from the IRA.  And I will have to file a paper return instead of electronically since I have to file a waiver letter.

Would the first option of adding the missed RMD to the other RMD of the remaining 403(B) save me the work of filing the 5329?

[fanfare]

are you talking to the old custodian or the new custodian.?

The old custodian should not let you do a rollover incorrectly., that is, without RMD first.

I don't know the answer to your question.

@dmertz  would know.

[sandy4042]

They're one and the same in this instance, Fidelity held the 403(B) and also the rollover IRA.  They erroneously allowed the rollover without the RMD being taken from the 403(B).  There is another 403(B) NOT rolled over yet with TIAA-CREF and from the same employer (they changed from Fidelity to TIAA-CREF) which I was hoping to take the aggregate RMD from.

[dmertz]

I assume that we are talking about 2025 RMDs since the deadline to take any 2024 RMDs has passed.

As you were informed, you technically impermissibly rolled over an RMD to the IRA and the correction should be to obtain a return of the excess contribution made to the IRA.  The total of the RMDs for the 403(b) accounts was required to be satisfied before rolling over anything from either 403(b).  (Present IRS guidance for rolling over or converting IRAs says that the total of the RMDs for all the individual's traditional IRAs must be completed before doing any rollovers or Roth conversions from the traditional IRAs, so I assume that the same applies to 403(b) accounts since aggregation is similarly permitted for 403(b) accounts.)

That said, if you just take the combined 403(b) RMD from the remaining 403(b), without a audit the IRS would not be aware that the total of the 403(b) RMDs was not satisfied before doing the rollover.  It's your choice whether to roll the dice and hope that the timing issue is never discovered by the IRS.  (If it is discovered, you'll likely be subject to accumulated excess-contribution penalties.)

With regard to obtaining the return of excess contribution (the total of the 403(b) RMDs) from the IRA, as long as that is done before the due date of the tax return for the year in which the deposit to the IRA was made (2025 tax year, I assume), there is no penalty that needs to be waived and no requirement to file Form 5329.  The rollover from the 403(b) resulted in the distribution of the RMDs for that 403(b) accounts, so there was no failure to take those RMDs.  Those RMDs were simply impermissibly rolled over.  Your tax return will need to include an explanation statement regarding the return of contribution.  What will likely preclude e-filing is the need to split into two the code G 2025 Form 1099-R that will be reporting the rollover, one with code G for the portion permissibly rolled over and one with code 7 for the portion impermissibly rolled over.  You'll then be able to prepare outside of TurboTax the explanation statement for the return of contribution and include that with your mailed tax return.

[sandy4042]

@dmertz Thanks for your reply!

Yes, we are talking about 2025 RMDs.  I think we don't want to roll the dice in this situation given the possible consequences.

The Fidelity 403(B) group is quite adamant about the necessity of filing the Form 5329 which calculates a 25% penalty on the RMD that was impermissibly rolled over, then asking for a waiver of the penalty which they say is generally granted if done in a timely manner.  I've looked the form over briefly and am unsure which part applies here, i.e., Part III Additional Tax on Excess Contributions to Traditional IRA or Part IX Additional Tax on Excess Accumulation in Qualified Retirement Plans.  Thoughts?  Also, does Turbo Tax support generation of a Form 5329?

Second question is about how the rollover and return of the excess contribution will be reported to us on the 1099-Rs.  One 1099-R will report the rollover with code "G", I'm assuming showing the original transaction including the impermissible RMD amount.  The second 1099-R will show the withdrawal of the impermissible RMD amount, with the code "7" normal distribution, and will be taxable income.  But are you saying that Fidelity's first 1099-R will be (or should be corrected by them) to show the actual amount that should have been rolled over?

Another way I am thinking of handling this situation, is to fill out form 5329 (as permitted by Turbo Tax) and pay the 25% penalty which would in this case be about $125 (25% of $505 RMD).  No letter or explanation required and I can file electronically.  Thoughts?

I am also thinking of counseling my husband to put off rolling over his second 403(B) until 2026.  He would just take the RMD required for it.  Do you think this will avoid complicating matters more than they already are?

Thanks again.

[dmertz]

"The Fidelity 403(B) group is quite adamant about the necessity of filing the Form 5329 which calculates a 25% penalty on the RMD that was impermissibly rolled over"

They are wrong.  There was indeed a distribution from the 403(b), and the first amounts distributed are deemed to be RMD until the RMD is satisfied.  In this case, it's just that, once distributed, the RMD portion of that distribution was impermissibly rolled over.  Had the distribution not included the RMD, the entire distribution would have been eligible for rollover.  The distribution can't be partly ineligible for rollover due to being partly RMD without being partly the RMD.  The RMD was satisfied by this distribution, so there is no excess accumulation that needs to be addressed on Part IX of Form 5329.

I'll repeat:  With the return of contribution completed timely, nothing at all will be reportable on Form 5329 with regard to any of this.

With the subsequent distribution of the excess IRA contribution before the due date of the 2025 tax return, there will also be no excess traditional IRA contribution to report on Form 5329.  Assuming that this distribution is made in 2025, the distribution will be reported on a code 8 2025 Form 1099-R.  Given recent market performance, I assume that there will be an attributable gain that must accompany the distribution of the RMD amount.  That gain will be taxable on your 2025 tax return.  Box 1 of that form will have in box 1 the sum of the RMD and the gain, box 2a will show just the gain, and the IRA/SEP/SIMPLE box will be marked.

As I said earlier, the code G Form 1099-R will show the total distributed, so you yourself will need to split that into two, one with code G for the part that was permissibly rolled over and another with code 7 for the portion that was impermissibly rolled over.

The only real question is whether my assumption that the RMD for both 403(b) accounts must be satisfied before any other amounts are permitted to be rolled over from either 403(b) is correct.  If that assumption is incorrect, then the rollover included only the RMD for the Fidelity account, not the RMD for the TIAA-CREF account.  Fidelity might not want to consider any more that the RMD for just the Fidelity 403(b) as having been impermissibly rolled over and that only that amount is eligible to be returned (along with a distribution of attributable earnings.