Withdrawing more than the RMD from an IRA BDA

[biggap]

We have each inherited an IRA, and set up appropriate IRA BDA accounts. For personal reasons, we are withdrawing well in excess of our RMDs. TT is asking whether all or part of this distribution was an RMD, and if only part of it, then how much was the RMD. I can understand if I'm withdrawing *less* than my RMD, because explanations and penalties would then ensue. Since I am withdrawing more, how accurate does this answer need to be? 

Mine is actually simple to figure out, spouse's not so much. Short version, the funds are in two separate institutions, one of which was disputing how much of it we were entitled to. We succeeded in withdrawing a plausible amount, based on our calculations of the estimated total, but how should we answer the same question? Again, we are withdrawing more than the RMD, so how accurate does the answer need to be? 

[fanfare]

just enter that all of it was RMD.

TurboTax will be satisfied.

[biggap]

Well, sure, that's simple and obvious. The unwritten question is whether TT reports this detail to the IRS, which already has other documentation to compare with, not to mention previous years.  If not, then the answer doesn't have to be accurate. 

However, if it DOES go to the IRS, the situation is more subtle. If both RMDs are reported to be 5K, but the balance in each is substantially different, does that trigger something at the IRS? Or since I've previously reported my RMD accurately but this year I say it's the whole thing, and the 3yr sequence looks like 5K, 5K, 20K, am I triggering some algorithm at the IRS?

I know, who knows what triggers the IRS. I'm just trying to avoid the most obvious inconsistencies, especially when the information is irrelevant. After all, TT is STILL asking whether we have health insurance, and whether we've had it all year. 

[Opus 17 · Accepted solution]

@biggap 

The reason Turbotax asks is there are some things you can't do with the RMD itself.  For example, you can't recontribute the required portion of the withdrawal to a different IRA, or roll it over to a different IRA.  Your answer is not reported to the IRS, but is used to make sure that the rest of your tax return is OK.  For example, if you contributed some money to your own IRA, Turbotax will make sure you had enough other income (not counting the RMD) to permit the contribution.

The purpose of the RMD is that you can't keep the money in a tax-free account forever.  After you inherit it, you can withdraw it all at once, or within 5 years, and pay the tax then.  If you want to keep it longer than 5 years, you have to withdraw at least a minimum amount each year and pay tax on it**.  The amount you must withdraw each year is determined by your life expectancy and the account balance, and has no relation to any amounts you withdrew in the past.  You must at least withdraw the minimum amount, you can always withdraw more if you want.  

(**And, this "stretch" option only applies to IRAs that were inherited in 2019 or earlier.  IRAs inherited in 2020 or after don't have any RMD requirement—you must withdraw all the money within 10 years, but you don't have any requirements along the way.)

[dmertz]

The only reason that TurboTax asks this question is to determine how much might be eligible for rollover.  If you  are a non-spouse beneficiary you are not permitted to roll any of the distribution over.   With nothing rolled over, it doesn't matter how you answer this question being posed by TurboTax.

However, TurboTax will separately ask if the amount distributed was sufficient to satisfy any RMD.  To be able to answer that question, you yourself need to determine how much was required to be distributed.  Any individual who receives less than the required amount is required to file From 5329 Part IX which assesses a 50% penalty on the amount of that individual's RMD that remained unsatisfied.

[biggap]

Thanks. Internal consistency check makes sense. There are plenty of times TT does something that takes me a while to trace back. Hadn't occurred to me in this situation.