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Your RMD is Not Eligible for Rollover

Avoiding Rollover Mistakes with Your RMD

If you are at retirement age, you might be at a high risk for excess contributions due to rollover mistakes. This is because of the rule that says that the required minimum distribution (RMD) for the year cannot be rolled over. In fact, the RMD for the IRA must be taken before any of the funds in the IRA are eligible for rollover. For example, an RMD must be taken before doing a Roth IRA conversion.

Your RMD is Not Eligible for Rollover

If you mistakenly roll over an RMD, you will end up with an excess contribution. Very often, many people think they can fix the problem by simply taking a distribution from the IRA that received the failed rollover. Not so fast! It’s not that easy. The RMD was distributed. That part went fine. However, because the RMD should not have been rolled over, it is considered an excess contribution and must be fixed as an excess contribution. 

Common Rollover Mistakes

  • Plan Administrator Errors: Sometimes the failed rollover is not due to a mistake on your part. Sometimes the mistake may be the fault of the plan administrator handling a rollover from a company plan to your IRA. If ineligible dollars are included in the amount rolled over to the IRA, an excess contribution in the IRA is the result.
  • Roth IRA Conversions: Roth IRA conversions are considered rollovers. If you mistakenly include your RMD in a conversion instead of taking it first, you will end up with an excess contribution in your Roth IRA.

Correcting an RMD That Becomes an Excess Contribution

If you have mistakenly rolled over your RMD, do not panic. This is a mistake that can be fixed without penalty if you act in a timely manner. If you correct the excess contribution, by removing it, plus net income attributable, by October 15 of the year following the year of the contribution, you can avoid the 6% excess contribution penalty.

Example Scenario

Example:  Carla, age 75, has not taken her 2024 RMD of $9,000. She rolls over her entire IRA balance to a new IRA. Carla’s RMD of $9,000 is considered an excess contribution in the receiving IRA. This problem cannot be fixed by Carla simply taking a distribution of $9,000 from the new IRA. She will have to correct the excess contribution. If Carla removes the $9,000, plus the net income attributable as a corrective withdrawal by October 15, 2025, she will avoid the 6% penalty that applies to excess contributions.

By Sarah Brenner, JD
Director of Retirement Education
Ed Slott and Company, LLC

Understanding the rules about RMDs and rollovers can help you avoid costly mistakes. For detailed advice on managing your RMDs and avoiding rollover mistakes, consult one of our financial advisors.

Christian Cordoba, founder of California Retirement Advisors, has been a member of Ed Slott's Master Elite IRA Advisor Group since 2007.

Copyright © 2024, Ed Slott and Company, LLC Reprinted from The Slott Report, 05/06/24, with permission. https://irahelp.com/slottreport/your-rmd-is-not-eligible-for-rollover/, Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article. 
Investment advisory services offered through Mutual Advisors, LLC DBA California Retirement Advisors, a SEC registered investment advisor. Securities offered through Mutual Securities, Inc., member FINRA/SIPC. Mutual Securities, Inc. and Mutual Advisors, LLC are affiliated companies. CA Insurance license #0B09076. This content is developed from sources believed to be providing accurate information and provided by California Retirement Advisors. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. California Retirement Advisors, nor any of its members, are tax accountants or legal attorneys and do not provide tax or legal advice. For tax or legal advice, you should consult your tax or legal professional.