By Andy Ives, CFP®, AIF®
Hi Mr. Slott:
I enjoy your website’s very helpful information! I know that the IRS rules limit us to one indirect (60-day) IRA rollover every 12-month period. Are Health Savings Account (HSA) indirect rollovers counted as one of these rollovers, or are the IRA and HSA once-per-12-month rules separate? In other words, can an IRA owner perform one of each in any one 12-month period?
While they have similar characteristics, IRA 60-day rollovers are separate from HSA 60-day rollovers. In fact, these rollovers are not even reported on the same tax document. IRA rollovers are reported on IRS Forms 1099-R and 5498, while HSA rollovers are reported on Forms 1099-SA and 5498-SA. As such, an IRA and HSA owner could do both an IRA-to-IRA 60-day rollover and an HSA-to-HSA 60-day rollover in the same 12-month period.
Scenario: Client dies on the last day of the year, December 31st. Client had not taken her required minimum distribution (RMD) during the year of death. Obviously, the IRA beneficiary won’t have time to take the year-of-death RMD. Instead, the beneficiary takes the year-of-death RMD in the first quarter of the following year. I cannot find an exception, so I assume the automatic 50% late withdrawal penalty applies. Perhaps the beneficiary should file IRS Form 5329 to report the late RMD and simultaneously request a waiver from our friends at the IRS?
You are correct that there is no exception for missing the year-of-death RMD – not even for the beneficiary when the original IRA owner dies on December 31. You are also correct that the best way forward is for the beneficiary to take the missed RMD and promptly file IRS Form 5329. (This is a stand-alone form and does not need to be filed with a tax return.) Do not pay the 50% penalty. Instead, include a letter requesting a waiver. Explain what happened, say that the RMD has been taken, and that it will not happen again. It is our experience that the IRS has been agreeable to waiving the penalty in such situations.