Take funds from a traditional IRA before a Roth


Reply:

No, there is no line or tax form that explicitly states that you are taking your RMD. You simply report your RMD amount as you would any distribution from your IRA or company pension plan. Typically, these distributions are reported on Form 1040-SR, on lines 4a and 4b for IRA distributions and on lines 5a and 5b for business plan distributions.

So obviously the next question is, “How will the IRS know if you take your RMD?” “

The IRS will know that you are subject to IRA RMDs because “the bank, fund company, or other financial institution that holds your IRA funds will report to” the IRS on Form 5498 (IRA Contribution Information) that you must submit an RMD for the year. There is no such report to the IRS for RMDs from your company’s pension plan.

Also, keep in mind that any portion of your annual RMD that is not withdrawn is subject to a draconian penalty of 50%. However, the IRS will usually waive this penalty for reasonable cause, such as medical issues, family death, financial advisor error, or other similar issues.

That said, it is your responsibility to calculate your annual RMD amount, although for your RMD IRAs, the bank, fund company, or other financial institution holding your IRA funds will notify you and even calculate the RMD for you if you ask them. But I wouldn’t trust that. First, their calculation may not be correct (you are still responsible for withdrawing the correct RMD amount). Additionally, you may have other IRA funds that you have withdrawn that may be part of your overall RMD from all of your IRAs.

It is best to calculate the amount on your own or with the help of a financial or tax advisor who will know the total balances of all your IRAs (including SEP or SINGLE IRAs, if you have any). Additionally, you may also have funds in a company pension plan, such as a 401 (k), which are subject to RMD. Financial institutions that hold your IRA funds will not provide RMD amounts from your business plans. They do not have access to this information.

It’s up to you to know the amount of the total RMD that needs to be taken out of your IRAs or other business plans, and it’s up to you to withdraw the correct amount. The amount you withdraw will simply be shown on your tax return as a normal distribution, but not specifically referenced anywhere on tax forms as meeting your annual RMD.


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