If You Had an ‘Outstanding’ Transaction for Last Year, Your IRA Custodian’s RMD Calculation May be Incorrect.
Your IRA custodian must either proactively provide you with a calculation of your required minimum distribution (RMD) amount, or send you an offer to calculate it upon request, providing they held your account as at December 31 of the previous year. However, your custodian is not responsible for determining if adjustments should be made to your FMV, which means you must make that determination for yourself. The following are some additions that you must make to your FMV for December 31 of last year, for purposes of calculating your RMD for this year.
- Outstanding Recharacterizations: If you completed a Roth conversion last year and recharacterized all or a part of it this year, the recharacterized amount must be added to your FMV for December 31 of last year
- Outstanding rollovers:If you took a distribution from your IRA and rolled over the amount within 60-days, but with the distribution having occurred last year and the rollover occurring this year, the rollover contribution amount must be added to your FMV for December 31 of last year
- Outstanding transfers: If you started a trustee-to-trustee transfer between IRAs and the assets left your IRA before close of business on December 31 and were credited to your receiving IRA after December 31, the transferred amount must be added to your FMV for December 31 of last year
If these adjustments are not made to your FMV, your calculated RMD amount will be less than it should be, and could result in you owing the IRS an excess accumulation penalty of 50% of the shortfall.
Consult with your tax or financial advisor for assistance with calculating your RMD.
Tip by Denise Appleby