I'm paying portion of my 1st RMD in 2016 and remainder by 4/1/2017 (as allowed). How will this be handled by turbo tax ? will I be penalized on my 2016 return ?

[rjs · Accepted solution]

The IRA custodian will send you a 2016 Form 1099-R for the amount you took out in 2016. You will enter that on your 2016 tax return and the tax on the withdrawal will be included in your 2016 tax. There is no penalty, but you have to pay tax on your 2016 tax return on the amount that you withdrew in 2016.

In addition to taking the remainder of your 2016 RMD in 2017, you will also have to take your RMD for 2017 (your second RMD) in 2017. You will get a 2017 Form 1099-R next year for the total amount that you take out in 2017 - the balance of your 2016 RMD plus your 2017 RMD. You will enter that 1099-R on your 2017 tax return and the tax on the total amount of the withdrawals will be included in your 2017 tax.

[dmertz]

In the follow-up after clicking the Continue button on the Your 1099-R Entries page, indicate that you received all of your RMD in 2016.  TurboTax's wording of this question does not properly accommodate the case where a portion of the first year's RMD is taken by April 1 in the following year.  If you instead indicate that you did not take all of your RMD, TurboTax will inappropriately prepare 2016 Form 5329 to allow you to request a waiver of an excess accumulation penalty to which you are not subject.

[bradjv]

My head is spinning. Yes, I received a 2016 form 1099R for my first RMD.  I will file this 1099R as a 'portion' of my first RMD and will then complete my first RMD by 4/1/2017. I also understand my second RMD is required by 12/31/2017.  So, am I correct in assuming that, in 2017 I will receive a single 1099R  which will contain both the remainder of my 2016 RMD and the total of my 2017 RMD ?  My confusion is: 1) for my 2016 return will I be penalized for 50% of the unreported 2016 RMD balance ? 2) How do I separate out the 2016 and 2017 RMD and taxes to be reported on the 2017 1099R ?    
I deeply appreciate the advise...

[bradjv]

My head is spinning. Yes, I received a 2016 form 1099R for my first RMD.  I will file this 1099R as a 'portion' of my first RMD and will then complete my first RMD by 4/1/2017. I also understand my second RMD is required by 12/31/2017.  So, am I correct in assuming that, in 2017 I will receive a single 1099R  which will contain both the remainder of my 2016 RMD and the total of my 2017 RMD ?  My confusion is: 1) for my 2016 return will I be penalized for 50% of the unreported 2016 RMD balance ? 2) How do I separate out the 2016 and 2017 RMD and taxes to be reported on the 2017 1099R ?    
I deeply appreciate the advise...

[rjs]

"1) for my 2016 return will I be penalized for 50% of the unreported 2016 RMD balance ?"
No, you will not be penalized, but to avoid being penalized you have to do what dmertz said above. After you finish entering your 2016 1099-R and continue through the TurboTax interview, you will come to a screen that says "Tell Us More About This Retirement Plan Distribution." That screen asks you to select one of three choices.
- I received all the RMD for 2016
- I did not receive all the RMD for 2016
- I was not required to take an RMD for 2016
You have to select the first choice, that you received all of the RMD for 2016, even though you didn't. You're not lying. The problem is that, as dmertz said, the wording of the choices in TurboTax is wrong when it is the first year that you are required to take an RMD.

"2) How do I separate out the 2016 and 2017 RMD and taxes to be reported on the 2017 1099R ?"
You don't separate them. You will most likely get a single 1099-R for the combined 2016 and 2017 RMDs. Just enter the information in TurboTax exactly as it appears on the 1099-R. There is no need to separate the amounts for 2016 and 2017. Your tax is calculated on your total income. It is not calculated separately on each distribution.

For that matter (at the risk of making your head spin more), you don't even have to take the 2016 and 2017 amounts as separate distributions. You could add them together and take one distribution of the total amount, as long as you do it by April 1.

[bradjv]

Thank You !  I now understand.  I appreciate your time and experience in this matter.

[macuser_22]

Just as a point of information:  NOTHING about a RMD goes on your tax return at all.  There is no place on a tax return that refers to a RMD.   The only reason for the RMD questions in TurboTax is to prepare a 5329 form and possible penalty if the RMD was NOT timely taken.   You are simply telling TurboTax that the 2016 RMD will be timely taken so that it does not improperly access a penalty now.

The IRS learns whether the RMD was timely taken or not from the IRA custodian, not your tax return, when  they report to the IRS on a 5498 form and the total distribution reported on your tax return.

[bradjv]

Thanks you. Very interesting.