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Can an RMD be satisfied by a withdrawal from a ROTH IRA?

Forum|Forum|4 years ago
August 24, 2022
6 replies
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My client has 3 IRAs, two traditional and one ROTH. The financial advisor calculated the RMD, but withdrew the funds from the ROTH. Is this allowed? It seems illogical that the IRS would allow this, but their website states: "Your withdrawals will be included in your taxable income except for any part that was taxed before (your basis) or that can be received tax-free (such as qualified distributions from designated Roth accounts)." Can anyone confirm? Thanks!

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Best answer by rbynaker

It has to come from a Traditional IRA. If this was a prior year, correct it ASAP and use Form 5329 Part IX to request a waiver of the 50% penalty (in my experience these are basically automatic, every one I've done has disappeared into a black hole, never to be heard from again.)

https://www.irs.gov/pub/irs-pdf/i5329.pdf

From page 7 column 3 (2021):

"If you have more than one IRA, you can
take the minimum required distribution
from any one or more of the IRAs (other
than Roth IRAs)."

Page 8 describes the waiver process under "Waiver of tax for reasonable cause."

Rick

rbynakerAnswer

Level 13

It has to come from a Traditional IRA. If this was a prior year, correct it ASAP and use Form 5329 Part IX to request a waiver of the 50% penalty (in my experience these are basically automatic, every one I've done has disappeared into a black hole, never to be heard from again.)

https://www.irs.gov/pub/irs-pdf/i5329.pdf

From page 7 column 3 (2021):

"If you have more than one IRA, you can
take the minimum required distribution
from any one or more of the IRAs (other
than Roth IRAs)."

Page 8 describes the waiver process under "Waiver of tax for reasonable cause."

Rick

rbynaker

Level 13

PS: And so many other things wrong with that situation, feel free to ask follow-up questions. The Roth IRA distribution is probably not taxable if the 5-year rule was met--if your client is old enough to get RMDs they're old enough to get tax-free Roth distributions. If these are inherited, that's a whole different set of problems. But wow, why would a FA ever take money out of the Roth first? I hate to use the "M" word but if the dollar amounts are significant your client may consider legal action against the FA.

qbteachmt

Level 15

"but their website states"

Yes, that statement is correct.

And remember that Roth 401(k) has RMD. If your client has a Roth 401(k), that is subject to RMD. If that is Roth IRA, that is not subject to RMD. If there is Basis in the Traditional IRA, that is only taxable pro rata for the Trad IRA RMD.

And if none of this is what happened, then your client needs to find a new financial advisor and now you know who not to refer your other clients to.

Don't yell at us; we're volunteers

qbteachmt

Level 15

I should expand my reply:

Yes, that statement is correct, but doesn't not address the question you asked. They are not related, other than, the statement explains the tax treatment of distributions as a general statement. It doesn't relate to eligibility or requirements of distributions. You read something that isn't your question.

Don't yell at us; we're volunteers

taxartistAuthor

Level 3

Thank you, I thought I had to be reading that wrong. It just didn't make sense to me that they would allow it to come out of a Roth. My spidey senses were off the charts!

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