Quick RMD Reporting Question

[marko]

Apologies in advance as I suspect this has been answered before.

Getting close to RMD time for me. I know it is reported on the 1099-R but how is it distinguished from a regular IRA withdrawal?

IOW, if my normal withdrawals exceed my required RMD, how does it show that portion as an RMD withdrawal? Or if I had never taken a withdrawal from my IRA and then do to satisfy the RMD, how is that flagged as specific to the RMD?

Or...does the IRS just need to know that I've withdrawn the amount--or more-- with no flagging required?

 

[Midpack]

I don’t know, but all the (non-Roth) withdrawal is taxed as income, RMD and excess - so no need to flag on 1099-R?

I think the form 5498 is where the RMD amount is calculated and cross checked (among other IRA info)?

Someone else will confirm or correct below I’m sure.

https://investor.vanguard.com/contact-us/faqs/more-than-rmd

https://financialducksinarow.com/1049/ira-rmd-reporting/

The IRS requires brokerage firms and other financial institutions that are custodians or trustees of traditional IRAs calculate or offer to calculate the RMD for IRA owners and to report this information to the IRS.

Both of these forms are filed with the IRS at the same time that they’re sent to you. So the IRS simply cross-references the distribution (Form 1099-R) with the balance information from Form 5498, thereby making sure that you have taken the appropriate distribution. It’s not always as simple as that, since the IRS must aggregate all of your IRA balances together, as well as all of your distributions, before making the calculations.

 

[38Chevy454]

At least for Fidelity accounts, they stated that for any withdrawals, RMD is credited first to help ensure that it is covered. Of course you need to take at least the reqd RMD amount by end of the year, but Fidelity credits to RMD first.

 

[statsman]

I don't think it gets reported that way, especially if you have more than one IRA, each having its own RMD (inherited IRAs excluded). You could actually sum the RMDs across multiple IRAs and take that amount from a single IRA. In this case, the bookkeeping would be the individual's concern.

 

[aja8888]

The RMD must be taken in the calendar year BEFORE any Roth conversion is done also.

 

[Souschef]

I don't think it gets reported that way, especially if you have more than one IRA, each having its own RMD (inherited IRAs excluded). You could actually sum the RMDs across multiple IRAs and take that amount from a single IRA. In this case, the bookkeeping would be the individual's concern.

Very true. I have 2 IRA accounts, and I have a spreadsheet to do the calculations. I enter the 31 Dec amounts, and the spreadsheet calculates the RMD.
Since I do quarterly withdrawals plus QCD's, I have another sheet that keeps track of them.

 

[braumeister]

The IRS counts the first distribution from an IRA as RMD. There is no need to designate it as such, you just have to be sure to take enough.

Note: If your first distribution is a QCD, then obviously that also counts against your RMD.

 

[marko]

The IRS counts the first distribution from an IRA as RMD. There is no need to designate it as such, you just have to be sure to take enough.

Note: If your first distribution is a QCD, then obviously that also counts against your RMD.

Thanks. That's what I had hoped/suspected. So the IRS already knows my age, knows what I need to do and lies in wait! Its essentially automatic from the first withdrawal.

 

[SecondCor521]

Apologies in advance as I suspect this has been answered before.

Getting close to RMD time for me. I know it is reported on the 1099-R but how is it distinguished from a regular IRA withdrawal?

IOW, if my normal withdrawals exceed my required RMD, how does it show that portion as an RMD withdrawal? Or if I had never taken a withdrawal from my IRA and then do to satisfy the RMD, how is that flagged as specific to the RMD?

Or...does the IRS just need to know that I've withdrawn the amount--or more-- with no flagging required?

Aggregate IRA withdrawals (aka distributions) are reported in box 1 of the 1099R.

There is no reporting on either the 1099R or a 5498 that distinguishes between RMDs and non-RMDs.

In fact, there is also no reporting on the 1099R or 5498 of any QCDs.

There is also no reporting anywhere on the 1040 to indicate that you've taken your adequate RMD.

It is the taxpayer's responsibility to take their RMD, and if they haven't, they would need to self-report the excess accumulation penalty in Part IX of Form 5329. I think there is also a way to request a waiver of the penalty, which I understand is commonly granted in the case of first-time offenders.

It is also the taxpayer's responsibility to properly adjust the taxable amount of their distribution for any QCDs. (It is also the taxpayer's responsibility to obtain a receipt from the charity in these cases.)

I suppose the IRS could perhaps check mathematically that people are taking their RMDs. The IRS could also find an RMD infraction via an audit, but I don't think they go looking for that. I don't think they do either of these but I have no evidence or data to back up my supposition.

I've seen numbers that say that most people take more than their RMD. Probably a lot of the remainder take their RMD properly because their custodians help with compliance. Probably a lot of the remainder catch their mistake and either pay the 5329 penalty or fess up. The remainder, I suspect, is such a small tax compliance issue that the IRS has other more pressing matters to attend to.

 

[marko]

Aggregate IRA withdrawals (aka distributions) are reported in box 1 of the 1099R.

There is no reporting on either the 1099R or a 5498 that distinguishes between RMDs and non-RMDs.

In fact, there is also no reporting on the 1099R or 5498 of any QCDs.

There is also no reporting anywhere on the 1040 to indicate that you've taken your adequate RMD.

Understood. But if my 1099R goes on line 4b of my 1040, how would they know if I under-withdrew and DW (who is not yet of age) made up the difference from her own IRA?

 

[OldShooter]

Understood. But if my 1099R goes on line 4b of my 1040, how would they know if I under-withdrew and DW (who is not yet of age) made up the difference from her own IRA?

I think the only risk is if you get audited and they want to see funds flows. I don't recall that the acronym "RMD" appears anywhere in the tax forms I have been filing. We do what we're supposed to, but I have always felt that the risk of making a mistake, considering low audit probability, was trivial.

 

[Out-to-Lunch]

Understood. But if my 1099R goes on line 4b of my 1040, how would they know if I under-withdrew and DW (who is not yet of age) made up the difference from her own IRA?

Remember, the "I" in IRA stands for "individual." My reading of the IRS rules is that you are required to make the necessary distributions from YOUR tIRAs

 

[marko]

Remember, the "I" in IRA stands for "individual." My reading of the IRS rules is that you are required to make the necessary distributions from YOUR tIRAs

Yes i know. But t on a joint filing how would they know short of an audit? Not that I would.

Then again I thought tge " I " stood for intwrnal

 

[Midpack]

Aggregate IRA withdrawals (aka distributions) are reported in box 1 of the 1099R.

There is no reporting on either the 1099R or a 5498 that distinguishes between RMDs and non-RMDs.

In fact, there is also no reporting on the 1099R or 5498 of any QCDs.

There is also no reporting anywhere on the 1040 to indicate that you've taken your adequate RMD.

It is the taxpayer's responsibility to take their RMD, and if they haven't, they would need to self-report the excess accumulation penalty in Part IX of Form 5329. I think there is also a way to request a waiver of the penalty, which I understand is commonly granted in the case of first-time offenders.

It is also the taxpayer's responsibility to properly adjust the taxable amount of their distribution for any QCDs. (It is also the taxpayer's responsibility to obtain a receipt from the charity in these cases.)

I suppose the IRS could perhaps check mathematically that people are taking their RMDs. The IRS could also find an RMD infraction via an audit, but I don't think they go looking for that. I don't think they do either of these but I have no evidence or data to back up my supposition.

I've seen numbers that say that most people take more than their RMD. Probably a lot of the remainder take their RMD properly because their custodians help with compliance. Probably a lot of the remainder catch their mistake and either pay the 5329 penalty or fess up. The remainder, I suspect, is such a small tax compliance issue that the IRS has other more pressing matters to attend to.

+1. Good summary, thanks.

The IRS knows by comparing your 1099-F and Form 5498. The taxpayer has both as well.

https://www.kiplinger.com/article/t...ks-down-on-retirees-who-do-not-take-rmds.html

 

[SecondCor521]

Understood. But if my 1099R goes on line 4b of my 1040, how would they know if I under-withdrew and DW (who is not yet of age) made up the difference from her own IRA?

My opinion is that the IRS doesn't know for certain, despite what the person interviewed in the above Kiplinger article said. (I'm not sure who that person is, but I think several of the things they said are just wrong, so I don't trust the rest of the article.)

The IRS does receive 1099-Rs by individual IRA, so they would be able to see the respective distribution(s).

But I'm not even sure they know your IRA year end balances. My Dad is subject to RMDs, and Vanguard has not reported his year end IRA balance to the IRS in either 2019 or 2020. YE balances seem to only be on Form 5498, which they did not issue to him in those years.

But I am not sure if they know exactly how old you are, and it's not clear to me if they know what kind of traditional IRA it is - I'm not sure they know whether you're the owner, or a beneficiary with an inherited IRA, whether you're a QDB, etc. They also don't necessarily know the age of your spouse or the beneficiaries of your IRA. These facts and factors all could affect whether you're subject to RMDs and their amount.

So I'm not sure they could, based on just the numbers reported, assert that you hadn't met your RMD with certainty. Although clearly an IRS auditor could probably figure it out based on a quick interview.

I still think they rely on people mostly either voluntarily complying because they need the money, or complying because of the law/penalty/risk of audit.

 

[cathy63]

Yes i know. But t on a joint filing how would they know short of an audit? Not that I would.

Then again I thought tge " I " stood for intwrnal

There's no need for an audit or for the IRS to even look at your tax return to figure out whether you took your RMDs. Your IRA custodians give them all the info they need.

Each IRA custodian filed a 5498 in May of 2021. They did that even if they didn't send the form to you. If you are over 72, there is a number in box 12b which is the RMD portion attributable to that account. The custodian also filed (or will file) a 1099-R in January of 2022. That document has a number in box 1 which is the actual amount you withdrew. If the sum of box 1 from all your 1099-Rs is less than the sum of box 12b from all your 5498s, then you did not take your RMD and you owe a penalty. (It's slightly more complicated if you turned 72 in 2021, but the info is still there.)

The calculation for your wife is completely separate and she could also owe a penalty if she didn't take her RMD.

 

[SecondCor521]

Each IRA custodian filed a 5498 in May of 2021. They did that even if they didn't send the form to you.

Emphasis added. I didn't know that kind of thing was a possibility - I thought the taxpayer always got their copy of whatever was submitted to the IRS.

 

[cathy63]

My opinion is that the IRS doesn't know for certain, despite what the person interviewed in the above Kiplinger article said. (I'm not sure who that person is, but I think several of the things they said are just wrong, so I don't trust the rest of the article.)

The IRS does receive 1099-Rs by individual IRA, so they would be able to see the respective distribution(s).

But I'm not even sure they know your IRA year end balances. My Dad is subject to RMDs, and Vanguard has not reported his year end IRA balance to the IRS in either 2019 or 2020. YE balances seem to only be on Form 5498, which they did not issue to him in those years.

But I am not sure if they know exactly how old you are, and it's not clear to me if they know what kind of traditional IRA it is - I'm not sure they know whether you're the owner, or a beneficiary with an inherited IRA, whether you're a QDB, etc. They also don't necessarily know the age of your spouse or the beneficiaries of your IRA. These facts and factors all could affect whether you're subject to RMDs and their amount.

So I'm not sure they could, based on just the numbers reported, assert that you hadn't met your RMD with certainty. Although clearly an IRS auditor could probably figure it out based on a quick interview.

I still think they rely on people mostly either voluntarily complying because they need the money, or complying because of the law/penalty/risk of audit.

The custodian has to file a 5498 with the IRS even if they do not send it to the account owner. From the instructions for Form 5498 (TY22) "If you furnished a statement of the FMV of the account (including information required to be reported in boxes 15a and 15b for hard-to-value assets) and RMD, if applicable, to the participant by January 31, 2023, and no reportable contributions, including rollovers, recharacterizations, or Roth IRA conversions, were made for 2022, you need not furnish another statement (or Form 5498) to the participant to report zero contributions. However, you must file Form 5498 with the IRS by May 31, 2023, to report the December 31, 2022, FMV of the account and the FMV of hard-to-value assets. This rule also applies to beneficiary accounts under the inherited IRA rules, earlier. For more information about the requirement to furnish statements to participants, see part M in the 2022 General Instructions for Certain Information Returns."

 

[SecondCor521]

The custodian has to file a 5498 with the IRS even if they do not send it to the account owner. From the instructions for Form 5498 (TY22) "If you furnished a statement of the FMV of the account (including information required to be reported in boxes 15a and 15b for hard-to-value assets) and RMD, if applicable, to the participant by January 31, 2023, and no reportable contributions, including rollovers, recharacterizations, or Roth IRA conversions, were made for 2022, you need not furnish another statement (or Form 5498) to the participant to report zero contributions. However, you must file Form 5498 with the IRS by May 31, 2023, to report the December 31, 2022, FMV of the account and the FMV of hard-to-value assets. This rule also applies to beneficiary accounts under the inherited IRA rules, earlier. For more information about the requirement to furnish statements to participants, see part M in the 2022 General Instructions for Certain Information Returns."

Thanks. So all the other complications I outlined are essentially pushed onto the IRA custodians - they need to know (and probably do know) how old you are, whether it's an inherited IRA, etc...?

 

[cathy63]

Thanks. So all the other complications I outlined are essentially pushed onto the IRA custodians - they need to know (and probably do know) how old you are, whether it's an inherited IRA, etc...?

Yes, they can't file the required 5498s unless they have all that info. I just took a look at my Fido account and the beneficiary designation shows name, relationship and DoB; so that's enough for them to know which RMD table to use. They definitely know if an IRA is inherited because it's right in the account title.

I'm sure mistakes are made sometimes when people divorce and get remarried and don't inform their account custodians. If the age gap between the account owner and one of the spouses is more than 10 yrs while the age gap with the other is less than 10 yrs, they could end up using the wrong RMD table. There's probably something buried in the account agreement that says I will notify them if my marital status changes.

 

[TheWizard]

Thanks. That's what I had hoped/suspected. So the IRS already knows my age, knows what I need to do and lies in wait! Its essentially automatic from the first withdrawal.

In reality, the IRS is hopelessly antiquated, understaffed, and bogged down.

In theory, it should easily be able to track compliance with the RMD rules, but in practice, there are numerous stories of folks who have gone years without taking RMDs with no penalties, YET.

Good idea to follow the law though, in case the IRS actually gets better at this...

 

[Bamaman]

The RMD must be taken in the calendar year BEFORE any Roth conversion is done also.

I'm going to be 72 in May and looking to make my first RMD. I could wait until 4/2023 to make my first RMD. But I'd have to take another RMD by 12/31/2023 which would make my tax liability too much.

I looked up my RMD on Fidelity yesterday, and it's substantially more than I ever made in any year in salary. And I've got social security and a pension on top of that.

I'm just thankful to have the Rollover IRA--even if my investment partner is Uncle Sam. The vast majority of citizens are not as well off as the average person on this forum.

 

[TheWizard]

I'm going to be 72 in May and looking to make my first RMD. I could wait until 4/2023 to make my first RMD. But I'd have to take another RMD by 12/31/2023 which would make my tax liability too much.

I looked up my RMD on Fidelity yesterday, and it's substantially more than I ever made in any year in salary...

That's curious. (I'm 72 this year as well.)
I put a decent percentage of my working years income into my tax-deferred 403(b) account for forty years, including large employer contributions.

If I hadn't annuitized anything from that account or done any Roth conversions, that account would be up around $3M by now, I'm guessing.
And the RMD on that would be a bit less than my salary my last few working years.

So that's an interesting metric, I suppose...

 

[Sunset]

In reality, the IRS is hopelessly antiquated, understaffed, and bogged down.

In theory, it should easily be able to track compliance with the RMD rules, but in practice, there are numerous stories of folks who have gone years without taking RMDs with no penalties, YET.

Good idea to follow the law though, in case the IRS actually gets better at this...

Just imagine the damage those folks face for no good reason.
50% of RMD as penalty for Year 1 = $$
50% of RMD as penalty for Year 2 = $$
50% of RMD as penalty for Year 3 = $$
50% of RMD as penalty for Year 4 = $$
50% of RMD as penalty for Year 5 = $$
plus
Take out 5 years of RMD in Year 6 + RMD for Year 6 = $$$$$ New tax bracket.