RMD Statements — Is Your Organization Prepared?
January is a hectic tax reporting month for many financial organizations. In addition to providing quarterly or year-end statements, financial organizations must provide required minimum distribution (RMD) statements to certain Traditional and SIMPLE IRA owners by January 31. If you haven’t already, now is the perfect time for you and your team to start preparing for the busy month ahead.
Individuals who are age 72 or older must take annual RMDs. If your financial organization holds a Traditional or SIMPLE IRA on December 31, 2022, and the IRA owner will be 72 or older in 2023, you must provide the IRA owner with an RMD statement by January 31, 2023. You must also provide an RMD statement to spouse beneficiaries age 72 and older who have moved inherited Traditional IRA or employer plan assets to their own IRA in a previous year. You do not, however, need to send an RMD statement to Roth IRA owners or to beneficiaries who are taking required distributions from inherited IRAs.
Satisfying the RMD Statement Requirement
There are multiple ways to satisfy the RMD statement requirement. In addition to sending the statement on its own, your organization can combine the RMD statement with the fair market value (FMV) statement, which is also due to IRA owners by January 31. You can also meet the RMD statement requirement by providing the IRA owner with IRS Form 5498, IRA Contribution Information, by January 31. If your financial organization chooses to provide Form 5498, you must enter the date by which the RMD must be distributed in Box 12a, RMD date, and the RMD amount in Box 12b, RMD amount. If the IRA owner subsequently makes a prior-year contribution that cannot be reported on this initial Form 5498, your organization should send a revised Form 5498 to the IRA owner by May 31.
RMD Statement Procedures
According to Notice 2002-27, financial organizations may choose one of two reporting alternatives to satisfy the RMD statement requirement.
Alternative 1 — Financial organizations may provide a statement to the IRA owner that reports the RMD amount and the date by which that RMD must be distributed.
Alternative 2 — Financial organizations may provide a statement to the IRA owner that
informs the IRA owner that he is required to take an RMD from the IRA,
notifies the IRA owner of the date by which the RMD must be distributed, and
offers to provide the RMD amount upon request.
With alternative 2, your financial organization must provide the RMD amount to the IRA owner upon request. Under both alternatives, the statement must notify the IRA owner that the financial organization will report to the IRS that the IRA owner is required to take an RMD for the year.
IRS Notice 2003-03 allows financial organizations some flexibility in using alternatives 1 or 2. For example, financial organizations may use alternative 1 for some IRA owners and alternative 2 for others. In addition, the Notice provides guidance on how the statements may be submitted electronically to IRA owners. Financial organizations may transmit the statements electronically only if procedures that apply to the electronic transmission of Forms W-2, Wage and Tax Statement, are satisfied, including the consent requirement described in regulations under IRC. Sec. 6051. The General Instructions for Certain Information Returns, Part M, describe the procedures.
Reporting RMDs to the IRS
Your financial organization is not required to report any RMD information to the IRS other than the fact that an RMD is due. To do this, your financial organization must check Box 11 of Form 5498, indicating that an RMD is due for the following year. For example, an IRA owner’s 2022 Form 5498 will have Box 11 checked if an RMD is due for 2023.
Calculating RMDs for the RMD Statement
To calculate the RMD amount for the RMD statement, divide the December 31 balance by the applicable distribution period. When computing the IRA balance, you may assume that the IRA received no additional amounts, such as outstanding rollovers or transfers, after December 31 of the prior year.
When creating the RMD statement, financial organizations may use the Uniform Lifetime Table to determine the IRA owner’s distribution period. The table can be found in Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).
The RMD amount listed on the RMD statement may differ from the IRA owner’s actual RMD calculation in two scenarios. First, if the sole IRA beneficiary is a spouse more than 10 years younger than the IRA owner, the actual RMD is calculated using the Joint Life Expectancy Table, which is also found in Publication 590-B. Second, if the IRA received an outstanding rollover or transfer, the amount must be added to the December 31 balance to calculate the actual RMD. Notice 2002-27 provides waivers of these rules for purposes of the RMD statements.
