Taxation on RMDs

[kfbrady]

Of course RMD information is sent to the IRS, just not on your tax return if you are not in deficit.  That’s what I meant when I wrote “However RMD data is sent to the IRS by investment companies.  So if you are in RMD deficit over your entire IRAs it's probably not a good idea to do this.”

[RGBush]

Yes, of course. In this case, it was my father and and I will be following the 10 year rule for a inherited IRA. My point was that after today's update to TurboTax 2024, the amount of the RMD was subjected to a 25% penalty. I had made no changes to my return other then opening it up after the update. What I have discovered though since posting my previous message is that the update had reset the RMD amount to zero when declaring how much of the RMD was included in the total distribution for 2024. So there isn't an issue (other than having to re enter in this information after the update).

[kfbrady]

Glad you got it all figured out.  This year’s release of TTax has been a bit of a mess.

I got my return e-filed and received both Federal and State refunds within about 10 days, so I’m a happy camper.

[BACHARACH0]

I am having the same problem now with the latest update.  The real problem is not being addressed, which is that the RMDs for all IRAs can be withdrawn from a single IRA account.  When this is done, there is only one 1099-R for that single account, so there cannot be any "matching" to 1099-Rs possible.  What Turbotax needs to do is, when asking what you are doing with the amount remaining, have the option to say "Used it to satisfy the RMD for my other IRAs".  There still is no balancing to the RMDs for the other IRAs.  Only the 5498s have the information needed to balance.  At least with the additional option, you would be able to document that the remainder of the withdrawal is going to RMDs for other IRAs.  I am describing the case where a single IRA account is used to satisfy all RMDs.  This would apply to any situation where at least one IRA did not have a withdrawal to satisfy its RMD, and, therefore, there is no 1099-R for it.  All the "Used it to satisfy the RMD for my other IRAs" document that the remainder of each withdrawal is going to satisfy the total of the RMD amounts for all the IRAs

[kfbrady]

I don't believe that's the "real problem".

TurboTax just needs to total all the distributions, total all the RMDs, and then compare the two totals.  Exactly how many distributions doesn't come into it.  If the total of the distributions is equal to or greater than the the total of the RMDs then no tax situation applies.  Simple.

[BACHARACH0]

There is no place in Turbotax to enter the RMDs for the IRA accounts where there was no withdrawal.  That information is entered when you enter a 1099-R in Turbotax, but there are no 1099-Rs to enter for those IRA accounts where there is no withdrawal.  In addition, even if there were, those RMDs would just be what you calculated them to be, unless you used the Form 5498s, and, without the Federal Tax ID of the sender of the Form 5498, those RMDs would just be a list of amounts, not tied to anything.  I would be fine with being asked just to list on a Turbotax worksheet the other RMDs that I calculated.  That is not what is happening, though.  If you are suggesting using Form View, I might as well fill out my returns manually.  Example with IRA 1 and IRA 2:

IRA1 RMD Amount $1000 Withdrawal Amount $1050

IRA2 RMD Amount $50 Withdrawal Amount $0

You receive a 1099-R for IRA1 for $1050 and enter the information in Turbotax.  Turbotax asks how much of that $1050 is for RMD but the update yesterday now states to not include the RMD for other retirement accounts you may have and that RMDs for other accounts should be entered separately, but where?  So you enter $1000.  Turbotax asks you what you are doing with the rest (the $50), and the options are Rollover to a different or the same retirement account or Something else.  If you enter Something else, Turbotax does not credit the $50 as a withdrawal to satisfy an RMD.  Turbotax later asks  if you missed a required distribution from any retirement accounts and to select any account type for which you did not take a distribution in 2024 even though an RMD was due by December 31, 2024.  One of the options is None of these plans failed to withdraw the RMD.  This seems to mean that this question is account specific, so the answer would be No (it actually is not a Yes / No question, as the other options are the plan type where the RMD was not withdrawn).  If you enter the option of An IRA, including SEP-IRA, SARSEP, or SIMPLE IRA (but not including inherited IRAs), Turbotax indicates that there is a penalty for not making the withdrawal, and proceeds accordingly.  If you enter the option of None of these plans failed to withdraw the RMD, there is no message about a penalty, but the amount of Federal tax due is different from what it was before the Turbotax update, which leads me to believe that there still is a problem. 

[kfbrady]

I agree.  It sounds like TurboTax botched the fix!

And of course, there can still be an RMD on an IRA with no distribution, which sounds like something they never thought of.

[mr11]

Same or similar question - 

I received an inherited RMD which is on a 1099-R and was taxed. But when you get to the RMD field, it would seem you should enter what was indeed paid out but when doing so you get whacked with a huge penalty. Why would you get a further hit on a death related RMD?? And are you supposed to report the RMD this way or is it saying that you should report only that which you were supposed to get an RMD for and did not??

Most of you are speaking of multiple IRAs and trying to total the RMD requirement. We only have one inherited IRA and are meeting the RMD so why is it all being treated like there should be a penalty?

[kfbrady]

1) Does the RMD amount show on your 1099?  None of my 1099s show it and typically you have to calculate it, or get it from your investment company or financial advisor. 

2) Is the RMD for the IRA greater than the distribution you received from it?  If so, then you'll pay taxes not only on the distribution (which your investment company has probably taken out and will show on your 1099) but also on the difference (which TTax will calculate and create a form 5329 for).  Unless of course, TTax has a bug in its software!

3) To answer your question, in TTax you should supply both the Distribution Amount and the Required Minimum Distribution for your IRA.

4) For an inherited IRA there are also considerations depending on the date of the death of the account holder; the 5 year rule and the new 10 year rule. 

See https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary

[mr11]

I wish that answered the question. I went back to TT 2023 - it had a different Q&A surrounding the RMD. IDK if RMD rules changed but no matter what I put in the RMD for an amount, I am taxed 25% unless I leave it blank. So it appears TT isn't recognizing there is an RMD at all and is treating any amount entered as penalty worthy. No, I am not up to the 25% tax bracket and even if I were, this has already had taxes taken out so while there could be some additional tax, certainly not an additional 25%.

[mr11]

So here's something strange. After being in and out of the income section for the IRA/RMD, it finally leveled out. IDK, I've been in several other TT areas where tax will count up only to be removed after a later confirmation question but I should have been past that...

[kfbrady]

That is strange!  But I'm glad you got it sorted out.

I'm far from an expert but the only differences for inherited IRAs - that I know about at least - are that the RMD requirements are calculated per individual 1099 (and not like regular IRAs where the calculations are made on the sums of all distributions and all RMDs from all 1099s), and the 5 and 10 year rules (which state that the account must be emptied within 5 or 10 years depending on the date of the death of the original account holder).

I can't imagine what must have triggered TTax to remove the tax it had previously calculated.  Maybe a TTax employee will chip in with an explanation?

[DaveF1006]

The 25% tax is a penalty tax for not taking an RMD on time. Go back to your 2023 and carefully review the entries you made. Compare the your entries with your 2024 return to see if they are the same and then make any corrections necessary.

To view your 2023 return, you will need to treat it like you are going to amend it to gain access. Here is how to proceed:

To amend your return using Turbo Tax Online.

1. Log into Turbo Tax
2. Select Scroll down Your tax returns & documents in your landing page.
3. Select Amend (change) 2023 return.  
    

To amend using the 2023 Desktop Software, go to:

1. Federal Taxes
2. Other Tax Situations>other tax forms
3. Amend a return

@mr11

[kfbrady]

"The 25% tax is a penalty tax for not taking an RMD on time. Go back to your 2023 and carefully review the entries you made. Compare the your entries with your 2024 return to see if they are the same and then make any corrections necessary."

Of course the 25% is a penalty for not satisfying RMDs. I think we all know this.

And, a previous return will probably have no bearing if the 2024 TTax software continues to calculate penalties incorrectly (by examining 1099s individually, rather than comparing the sum of all distributions to the sum of all RMD amounts) as has been proven earlier in this thread.