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I did a direct rollover from a pension fund to a traditional IRA in 2016. I turned 70-1/2 in 2016. Was I supposed to take a 2016 RMD from this new IRA?

If so, should it be based on the 2015 closing value of the pension fund?
Neither the pension fund nor the IRA administrators know the answer.
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1 Best answer

Accepted Solutions
dmertz
Level 15

I did a direct rollover from a pension fund to a traditional IRA in 2016. I turned 70-1/2 in 2016. Was I supposed to take a 2016 RMD from this new IRA?

No, you do not have an RMD from the new IRA for 2016.  However, if you were no longer working for the company that provided the pension fund, your pension fund was required to distribute to you your 2016 RMD from the pension fund prior to rolling over to the IRA the remainder of your pension fund.  If your pension fund failed to distribute to you your pension-fund RMD, the amount of the pension fund RMD that should have been distributed to you is now an excess contribution to the IRA to the extent that it exceeds your eligibility to make a new, regular contribution to a IRA.  As an excess contribution, the excess will need to be distributed to you by a "return of excess contribution before the due date of your tax return,"  otherwise you will subject to excess contribution penalties each year until the excess is resolved.

Assuming that you were subject to a 2016 RMD from your pension fund (because you were no longer employed by this employer by the end of 2016), that RMD is calculated on your 2015 pension fund year-end balance and your age on your birthday in 2016.

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9 Replies
dmertz
Level 15

I did a direct rollover from a pension fund to a traditional IRA in 2016. I turned 70-1/2 in 2016. Was I supposed to take a 2016 RMD from this new IRA?

No, you do not have an RMD from the new IRA for 2016.  However, if you were no longer working for the company that provided the pension fund, your pension fund was required to distribute to you your 2016 RMD from the pension fund prior to rolling over to the IRA the remainder of your pension fund.  If your pension fund failed to distribute to you your pension-fund RMD, the amount of the pension fund RMD that should have been distributed to you is now an excess contribution to the IRA to the extent that it exceeds your eligibility to make a new, regular contribution to a IRA.  As an excess contribution, the excess will need to be distributed to you by a "return of excess contribution before the due date of your tax return,"  otherwise you will subject to excess contribution penalties each year until the excess is resolved.

Assuming that you were subject to a 2016 RMD from your pension fund (because you were no longer employed by this employer by the end of 2016), that RMD is calculated on your 2015 pension fund year-end balance and your age on your birthday in 2016.

I did a direct rollover from a pension fund to a traditional IRA in 2016. I turned 70-1/2 in 2016. Was I supposed to take a 2016 RMD from this new IRA?

Thank you for your answer!
My employment terminated prior to my 70th birthday. I was not given the option of making an RMD prior to the disbursement of the pension. My choices were periodic payments or a lump sum distribution. I took the lump sum distribution as a direct rollover to an IRA.
Unfortunately, I made a 2016 ROTH contribution yesterday, based on my projected MAGI, before receiving your answer today.
So it appears I need to do a "return of excess contribution" for that, also!

I did a direct rollover from a pension fund to a traditional IRA in 2016. I turned 70-1/2 in 2016. Was I supposed to take a 2016 RMD from this new IRA?

OOPS! If I make my traditional IRA's return of excess contribution before the due date of my tax return (including extension?), then it should be OK to leave the 2016 ROTH contribution in place, based on my MAGI.
Does that sound correct?
dmertz
Level 15

I did a direct rollover from a pension fund to a traditional IRA in 2016. I turned 70-1/2 in 2016. Was I supposed to take a 2016 RMD from this new IRA?

Yes, that's correct.  I failed to consider that your age makes you ineligible for any traditional IRA contribution for 2016, so the entire amount that the plan should have first paid to you as RMD is an excess traditional IRA contribution.

To be able to make a return of contribution, you'll need to either complete that before the end of April 18, 2017, or at least file your tax return or request a filing extension by that date (tomorrow).  If you do not obtain the return of contribution by that date and do not file your tax return or request an extension by that date, the ability to obtain a return of contribution before the due date of your tax return is lost and you'll have to pay a 6% penalty on the excess and resolve the excess before the end of 2017 to avoid another penalty for 2017.

I did a direct rollover from a pension fund to a traditional IRA in 2016. I turned 70-1/2 in 2016. Was I supposed to take a 2016 RMD from this new IRA?

Another problem is that I invested the excess contribution, so I assume any gains on it will need to be returned, also.
dmertz
Level 15

I did a direct rollover from a pension fund to a traditional IRA in 2016. I turned 70-1/2 in 2016. Was I supposed to take a 2016 RMD from this new IRA?

Yes, a return of contribution before the due date of your tax return must be accompanied by any gain or loss attributable to the excess contribution.  Since the excess contribution being returned was made in 2016, any gain will be taxable on your 2016 tax return but you won't receive the 2017 code P Form 1099-R until the beginning of 2018.  To get the gain reported now on your 2016 tax return you'll need to enter the From 1099-R as if you have already received it.

(A word of caution:  Make sure that no taxes are withheld from the return of excess contribution, otherwise that complicates the reporting.)

I did a direct rollover from a pension fund to a traditional IRA in 2016. I turned 70-1/2 in 2016. Was I supposed to take a 2016 RMD from this new IRA?

Thank you so much for guiding me through this!
dmertz
Level 15

I did a direct rollover from a pension fund to a traditional IRA in 2016. I turned 70-1/2 in 2016. Was I supposed to take a 2016 RMD from this new IRA?

Also, reporting of the rollover on your 2016 tax return cannot be done by entering the code G Form 1099-R that you received.  Since the administrator undoubtedly will not make any corrections to the reporting, you'll need to split the From 1099-R into two substitute Forms 1099-R, one with code for the portion that was RMD, not rolled over, and the other with code G for the remainder.  Only the portion eligible to be rolled over can be reported as having been rolled over.  However, TurboTax automatically assumes that the payer did thing correctly and that the Form 1099-R provided by the payer is accurate.

To get TurboTax to allow you to enter an explanation for the excess contribution and its return, you may need to enter the RMD amount as a regular traditional IRA contribution, let TurboTax tell you it's an excess contribution, then indicate that you have requested that the RMD amount be returned.

Editorial comment:  It's unfortunate that 401(k) plans sometimes make the mistake of failing to distribute the plan RMD separately from the direct rollover under these circumstances.  It *really* complicates what something that should be simple.  Even though the distribution must be split to two separate destinations, it still constitutes a lump-sum distribution.

I did a direct rollover from a pension fund to a traditional IRA in 2016. I turned 70-1/2 in 2016. Was I supposed to take a 2016 RMD from this new IRA?

Oh, Wow. Thanks again!
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