Taxation on RMDs

[kfbrady]

Here's my issue with Desktop TTax 2024 on my Win 11 Pro PC.  My wife and I, both over 73, receive distributions from 3 different IRAs, none of them inherited.  On two of them our distributions comfortably exceed the RMDs for the accounts.  On the third IRA our distribution is less than the RMD.  Because of this TTax is calculating a 50% tax on the deficit from that last account. 

My understanding from the tax codes, and from the TTax help info., is as follows (pasted from TTax)...

IRA accounts (except inherited IRA accounts)
For IRA accounts, start by adding up the RMD for each account. (Your account administrator should provide the RMD amount for you.) Then add up the qualified distributions taken from all accounts. As long as the TOTAL qualified distributions from all IRA accounts meets or exceeds the TOTAL RMD for all IRA accounts combined, then you've met the RMD requirements for your IRA accounts.

The software appears to be handling the three IRAs separately, and not adding up all distributions and all the RMDs.  If it did our total distributions would be significantly greater that the total RMDs, and there would be no taxes to be paid on them. 

I just spent almost an hour on the phone with a TTax rep sharing my PC screen.  She was polite but not particularly helpful.  She suggested that I speak with a tax expert but it's not a tax issue.  I believe it's a software issue.  I "think" she eventually agreed with me but I'm not 100% sure.

Anyway, is there any sort of workaround?

[MinhT1]

An IRA owner must calculate the RMD separately for each IRA that he or she owns, but can withdraw the total amount from one or more of the IRAs. 

If you are sure that you have satisfied all RMD requirements, then in TurboTax, on each form 1099-R for RMD withdrawals, answer that The entire distribution was an RMD then on the following page, to the question What is the RMD for your account? enter the amount of the distribution from that IRA account.

By doing this, you are telling TurboTax that all RMDs are satisfied and TurboTax will not calculate any penalty. The information you entered in TurboTax is to enable TurboTax to calculate any penalty where applicable, and is not reported to the IRS.

Similarly, a 403(b) contract owner must calculate the RMD separately for each 403(b) contract that he or she owns, but can take the total amount from one or more of the 403(b) contracts.

However, RMDs required from other types of retirement plans, such as 401(k) and 457(b) plans have to be taken separately from each of those plan accounts.

Please read this IRS FAQ for more information.

[kfbrady]

Thank you for the response.  I appreciate it.

I do understand that IRAs are treated differently than other retirement plans.

For each of the 4 IRAs I have entered they are set to the entire distribution being an RMD.  The only difference is with the account which distributed less than its RMD.  In this case I get an extra screen telling me that the difference could be taxed but the rate will be lower if I withdrew the difference during the correction window.  I can answer Yes, or No. 

So, it seems like TTax is NOT summing up the distributions and RMDs

[MaryK4 · Accepted solution]

You are correct.  Currently, TurboTax is looking at the distribution from each 1099-R separately and will add the Form 5329 for the penalty without looking the the total of all the distributions added together.  An update is being worked on.  The amounts for the RMD are not reported to the IRS if there is no penalty, it is used by TurboTax for calculation of the penalty so you can wait for the update, or as a workaround answer Yes you will withdraw in the correction window so you can file now.  @kfbrady 

[kfbrady]

Thank you for posting this.

And kudos for providing a workaround.

Kevin.

[kfbrady]

Just to add... While I am using TTax Deluxe on my Win 11 PC I did also try inputting my data to the web version.  It handled the RMD data incorrectly and in exactly the same way as the desktop version.

[kfbrady]

"You are correct.  Currently, TurboTax is looking at the distribution from each 1099-R separately and will add the Form 5329 for the penalty without looking the the total of all the distributions added together.  An update is being worked on.  The amounts for the RMD are not reported to the IRS if there is no penalty, it is used by TurboTax for calculation of the penalty so you can wait for the update, or as a workaround answer Yes you will withdraw in the correction window so you can file now. "

I just finished my 2024 return.  I answered "Yes" to withdrawing the balance during the correction window as advised. I also selected "Yes" to meeting the RMD for the year.  The software then shows that the balance was taxed and asks if I would like to fill out a waiver.  Whether I answer Yes or No TTax still generates a Form 5329 with an additional tax on the balance and includes this in my return.

Is there an ETA for the update?

[bosh]

kfBrady,

You are not alone, I have exactly same problem with 2024 Turbo tax premium. Totals of RMDs and actual distributions are not properly calculated. The 1099-R that have actual distribution higher than RMD to cover rest of 1099-Rs don't used in total calculations and as a result form 5329 generated and additional taxation applied. I used "override" in 5329 and enter correct amounts. That removes additional tax penalty for not satisfying RMD.

The best way is wait until the bug will be fixed, or you can leave with 5329 overwritten lines 52a and 53a

[VolvoGirl]

@kfbrady @bosh   

When it asks about the RMD it is only asking for that one 1099R you are entering. You need to enter the amount from box 1 on that single 1099R for the RMD, not the total RMD for all and even if it is more or less than the total.  You won’t need to override anything or fill out a waiver, etc.   Just say it was all the RMD and put in the same amount that’s in box 1.

[kfbrady]

Thanks for your response but that's not the issue, or the answer - of course for each 1099-R only the gross distribution in Box 1 of that 1099-R is being entered.

The issue is that for IRAs, TTax should be summing the distributions from ALL the 1099-Rs and comparing that to the sum of ALL required RMDs for each account before deciding whether the requirements have been met, and only then calculating the tax owed if there is a deficit.  

Unfortunately, TTax is comparing the distribution from each 10-99 against the RMD for each one and deciding on a 1099-R by 1099-R basis whether there is a deficit. 

This is from TTax's own help info..."IRA accounts (except inherited IRA accounts)
For IRA accounts, start by adding up the RMD for each account. (Your account administrator should provide the RMD amount for you.) Then add up the qualified distributions taken from all accounts. As long as the TOTAL qualified distributions from all IRA accounts meets or exceeds the TOTAL RMD for all IRA accounts combined, then you've met the RMD requirements for your IRA accounts."

I'm quite sure this much be impacting a lot of seniors.  I hope they get a fix sooner rather than later.

[VolvoGirl]

Maybe you misunderstood me.   After you enter each 1099R it will ask if it was the RMD.   Say Yes, then for the RMD question enter the same amount from box 1.   

We know they changed it this year and are not adding up all the IRA totals for the RMD.  It needs fixing.   So until they fix it you have to answer box 1 is the RMD for each one.   

[kfbrady]

I think I'm clear on it now...

For only 1099-Rs that show an RMD deficit, when TTax asks for the RMD for that one account on the "Let's get more information..." page, you need to put in a value that is greater than zero, but less than or equal to the distribution from the account (even if the actual value of the RMD should be higher).  Entering the amount of the entire distribution satisfies this.

TTax will then cancel out any tax that it had previously calculated for that account, remove the Form 5329 from your return, and you will see your Federal tax bill adjusted accordingly.  Certainly on my fairly simple return there are no mentions of RMDs anywhere else so this information is not passed on to the IRS.  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.

Thanks to all who have responded.

[jaykay2]

Actually, the RMD amounts ARE reported to the IRS by the companies holding your IRAs - it just might take them a while to catch up to you.  I was having this exact same issue - multiple RMD withdrawals from 3 different IRA accounts that exceeded my total RMD required.  I thought I was losing my mind since TurboTax did not add correctly add all the RMDs/withdrawals.  

Please fix this!!!

[RGBush]

After opening my 2024 return today, my projected $500 refund amount turned into me owing $600 to the IRS. It looks like the latest update is treating my RMD amount as a penalty. The RMD amount is about half of the total I have listed in Box 1. I'm only withdrawing money form this one particular inherited IRA. If I put 0 in the RMD amount, then there is no penalty. For every dollar I put in RMD box (up to the amount in Box 1, the penalty increases. Again, this only appeared when my TurboTax updated this morning (with no changes to my last saved 2024 return). I assume this is a programming issue (maybe the analysts were trying to solve the issue described by these other TurboTax users).

[kfbrady]

You do realize that inherited IRAs are handled differently than non-inherited ones right?  And the RMD amount depends on what type beneficiary you are: designated, non-designated or spousal.