Can I Reverse an IRA RMD?
Required Minimum Distribution
- If you own a traditional, SEP or SIMPLE IRA, the IRS requires that you begin to take RMDs from your account at age 70.5. At this time, you must pay taxes on your withdrawals because of the tax-deferred benefits you received on the contributions. You do not have to take RMDs if you own a Roth IRA. The amount you must withdraw changes annually depending on how much you have in the account, your age and your life expectancy.
- To calculate an RMD, you divide the dollar amount in the account on December 31 the applicable year by the number of years remaining in your life expectancy according to the appropriate IRS table. The IRS provides three different life expectancy tables to use: the single life expectancy table, the joint life and last survivor expectancy, and the uniform lifetime table. If you are the owner of the account and your spouse is not the sole beneficiary or is more than 10 years younger than you, you use the uniform lifetime table. If your spouse is the sole beneficiary and more than 10 years younger than you, use the joint life and last survivor table. If you are a beneficiary who is not a spouse that is more than 10 years younger than the owner of the account is, use the single life expectancy table.
- The IRS rules state that once you reach the age of 70.5, the IRS no longer permits you to contribute to your retirement account. Therefore, you cannot reverse the RMD taken or contribute any portion to another account. You also may not roll over any portion of your RMD to another retirement account. If you take out more than the IRS requires you to take, you also cannot apply this amount to limit the requirements of a future year. Therefore, you have no means by which to reverse an RMD or any withdrawal after you reach the age at which you must begin taking RMDs.
- You can take your RMD in one lump sum or in periodic distributions throughout the year. The IRS only stipulates that you must take the full amount of the RMD by the last day of the tax year, which is December 31 for most taxpayers. Failure to take the full amount of your RMD will result in an assessment of a 50 percent excise tax on the amount of the distribution that you did not take for that year. As the IRS does not permit RMD reversals, you can take advantage of the Roth IRA to limit the amount of RMDs you must take during retirement. While you pay taxes on the money before contributing it to a Roth IRA, the IRS does not require RMDs and all withdrawals from a Roth IRA are tax-free.