How do I tell if a pension is qualified? If it is qualified, how do I calculate the Required Minimum Distribution?

[benjamingslade]

My mom has a state pension.  On the 1099-R form it just says "pension payment".  The "IRA/SEP/SIMPLE" box is not checked.  Do Required Minimum Distribution (RMD) requirements apply to pension payments where the "IRA/SEP/SIMPLE" box is not checked?

Looking around, I found the  Retirement Plan and IRA Required Minimum Distributions FAQs page.  It asks for the IRA balance for the previous year.  But this doesn't make sense for pensions, right?

So if this is a pension, and pensions don't have RMDs, why is TurboTax asking if part or all of the pension payment is an RMD?

Thanks in advance
Ben

[ColeenD3 · Accepted solution]

She has a pension, not an IRA. Yes, pensions must distribute RMDs and she must take her RMD if she has reached age 72.

Qualified vs. Nonqualified Retirement Plans

Employers create qualified and nonqualified retirement plans with the intent of benefiting employees. The Employee Retirement Income Security Act (ERISA), enacted in 1974, was intended to protect workers’ retirement income and provide a measure of information and transparency.1

In simple terms, a qualified retirement plan is one that meets ERISA guidelines, while a nonqualified retirement plan falls outside of ERISA guidelines. Some examples:

• Qualified plans include 401(k) plans, 403(b) plans, profit-sharing plans, and Keogh (HR-10) plans.
• Nonqualified plans include deferred-compensation plans, executive bonus plans, and split-dollar life insurance plans.

[benjamingslade]

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@ColeenD3 wrote:

She has a pension, not an IRA. Yes, pensions must distribute RMDs and she must take her RMD if she has reached age 72.

In TurboTax Deluxe (on my PC), in the help for the RMD it says

"The amount depends on your life expectancy and and the balance in the account"

But there is no "balance" for a pension, right?  It just pays indefinitely.  So how do you calculate the RMD for a pension with no balance?

[JulieS · Accepted solution]

You do not have to calculate the RMD of a pension. If it is a qualified pension, the plan has to determine the RMD and distribute that amount to the pensioner each year. 

When you have a 1099-R for a qualified pension, you can assume that the entire amount is the RMD and that the entire RMD was received during the year for that plan. 

[benjamingslade]

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@JulieS wrote:

You do not have to calculate the RMD of a pension. If it is a qualified pension, the plan has to determine the RMD and distribute that amount to the pensioner each year. 

When you have a 1099-R for a qualified pension, you can assume that the entire amount is the RMD and that the entire RMD was received during the year for that plan. 

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It would be nice if TurboTax said this on the page where it asks "was this an RMD withdrawal?"   It's a pretty common situations for retired with pensions.   Does TurboTax really expect all the millions of users with pensions to spend a few weeks getting this answer in forums?  (where there's no email notification when an answer is posted)

Anyway, thanks for the help.

Ben

[JohnM44]

I believe the expert answers are incorrect.  My qualified pension plan administrator says my pension does not require an RMD.  I have two IRAs that do require RMDs.  I understood the reason Turbo Tax asks if I want all or part of my Pension payments to count as RMDs was to partially cover what I need to withdraw for the IRAs.  If this is NOT true, I need to know from Intuit tax experts so I don't get in trouble with the IRS.  Thanks.

[VolvoGirl]

For pension.  Say all of it is the RMD.  If you are 72  it will ask you if it is the RMD.  Say yes.  Anything your pension pays you is considered to be the  RMD.  Traditional pensions automatically fulfill the rules of an RMD.

No the pension will not cover any RMD for IRAs.  That's not why it's asks.  

[fanfare]

TurboTax causes confusion with its Q&A for pension income.

for purposes of moving on, tell TurboTax it is all RMD.

pensioner are becoming rare like the dodo bird.

but the Auto Workers union wants to bring them back.

[JohnM44]

These replies are not making sense.  My Qualified Pension Plan administrator told me there is NO RMD requirement.  So if I cannot use my pension payments to count as RMD for my IRAs, why does TurboTax ask if I want all or part of my pension payments to count as my RMD?  I answered YES when I filed my 2022 taxes (as you recommend) and it then asked how much of my pension payments did I want counted as my RMD.  I did want some of my pension to count so I entered an amount.  TurboTax did not have a problem with these answers.  Furthermore, in previous tax filings, I answered NO to the original question (did I want my pension to count as an RMD).  And TurboTax never had an issue with that either.  So, I am left concluding that the IRS will consider pension payments to count as RMD for IRAs.  And this is what I'm trying to get a tax expert to verify before I count on this for my 2023 tax filing.  Please let me know if pension payments can be used as RMD for IRAs.  If not, this page on TurboTax needs an update to eliminate this confusion.

[VolvoGirl]

 @dmertz  Can you help explain this?

[VolvoGirl]

I looked at my program.  After you enter the 1099R it does go though more questions about RMD.  But that is not just for t he pension 1099R.  It's asking for all your retirement accounts, 401k and IRA .  You need to take the RMD out of each kind of account.  

[dmertz · Accepted solution]

Because RMDs are not eligible for rollover, TurboTax ask how much is RMD (a required distribution) only to determine how much the distribution exceeds your RMD and is eligible for rollover.  If you roll over any part of a required distribution, TurboTax must treat that as an amount not rolled over and it becomes an excess contribution in the account that received the rollover.  As VolvoGirl said, regular periodic pension payments (received as an annuity for life) are not eligible for rollover, so the entire amount of these pension distributions is considered to be a required distribution and is ineligible for rollover.

Pension distributions are not permitted to be treated as satisfying any part of an IRA RMD.  Your RMDs for your traditional IRAs are only permitted to be satisfied by distributions from your traditional IRAs.

[benjamingslade]

dmertz said (with my annotations in square brackets):

Because RMDs are not eligible for [IRA] rollover, TurboTax ask how much is RMD (a required distribution) only to determine how much the distribution exceeds your RMD and is eligible for [IRA] rollover. 

So the the idea of a RMD here (in the TurboTax software) is only for purposes of dealing with IRA rollovers.

But it does looks like the IRS tax code treats pension payments as RMDs.    That seem silly since there's no choice for how much to get paid by your pension.  The minimum is the maximum is the average, etc.  But fine, that's the terminology that's been adopted.

But the TurboTax RMD page definitely should be updated to say this.  Here's what it said last year (2022) for me:

This is clearly written for IRAs where there's a choice of how much to withdraw.   A sentence should be added saying "For pensions, the RMD is just the total amount of the payment".  Is there anyway to submit this as a bug report?

Ben Slade

[JohnM44]

You acknowledge there is no way to rollover a monthly pension annuity.  And there is NO RMD required for a company qualified pension plan (at least in my case per the plan administrator).  So I don't understand why TurboTax needs to ask if this 1099-R represents an RMD.  Sorry, but your Oct. 4 reply didn't make sense to me. This is causing much confusion.

I do thank you, though, for affirming that pension annuity payments cannot be used to satisfy the RMD from IRAs.  

[dmertz]

"RMD" stands for Required Minimum Distribution.  By law, payments from a pension during the payout phase are required distributions and are the minimum (also maximum) amount required to be distributed.  Therefore, these payments are, by definition, RMDs.  Pensions administrators just don't bother to state it as such because there is generally no question as to the nature of such a distribution as their might be from nonperiodic payments from retirement accounts.

For those beyond the applicable age, TurboTax asks the question because the details of the Form 1099-R in no way indicate whether the form is reporting amounts that are ineligible for rollover due to being required distributions.