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Can I Avoid Taking RMDs?

Last Updated December 17, 2015

Question: 

I think found a way to avoid taking RMDs. Can you tell me if it could work? Let’s say I take a distribution in December, and leave only $10 in my traditional IRA. This means that when my custodian calculates my RMD amount, it will be $0.00 (rounding to the nearest dollar) since my December 31 fair market value (FMV) will be $10. Given that I have 60-days to rollover the amount, I can complete the rollover in January, bringing back my balance to what I had before I took the distribution. I think I can do this every year and always avoid the RMD.

Answer: 

The IRS is ahead of you on this one.

Under the RMD regulations, the December 31 fair market value (FMV) used to calculate your RMD must be calculated as follows:

December 31 FMV , plus

Therefore, in the example you gave, you are required to add (back) the amount that you rollover within 60-days to your December 31 FMV, in order to determine your correct RMD amount. In short; you cannot avoid taking your RMD by completing a distribution before year-end, only to rollover the amount (within 60-days) after the end of the year. Your IRA custodian will likely use the December 31 FMV they have on record when they calculate your RMD. Therefore, it is your responsibility to ensure the amount is refigured, using the adjusted December 31 FMV. Individuals who convert amounts to a Roth IRA, and recharacterize the amount after December 31, must add the conversion amount plus any NIA to the December 31 FMV of the IRA to which the recharacterization is made, for purposes of determining the IRA owner’s RMD.

Question answered by by Denise Appleby