Q&A: A required minimum distribution headache

Dear Liz: For more than four years my husband has had to take a required minimum distribution from his 457 deferred compensation plan. We have always chosen when to do that, knowing that it has to be done by Dec. 31.

This year we processed the distribution on Dec. 28 to take advantage of stock market movements. We saw the direct deposit of that transaction hit our savings account as planned. To our astonishment, we got a letter (dated Dec. 27 but received after Jan. 1) from the plan’s trustee informing us that “as a courtesy” it had initiated a required minimum distribution “on our behalf.” The letter even “assisted” us with information on how we can “establish a recurring RMD” in the future. We received a check in the mail Jan. 5 for this unnecessary and unwanted distribution.

Not only is this a duplication of my husband’s RMD for this account, but this distribution also may push us into a higher tax bracket. It also sets me up for a further increase in my Medicare B premiums because of the higher income.

I have searched but could not find any information on how to roll this back or how they could have been so bold, and under what authority they took the liberty to babysit a depositor. Can you provide any information?

Answer: Before any more time passes, put the money into an IRA and keep documentation of the “redeposit,” said Robert Westley, a CPA and personal financial specialist with the American Institute of CPAs’ PFS Credential Committee.

The plan provider likely will send a 1099-R form that includes the second withdrawal, so you’ll need this documentation to avoid taxation on the extra money. If you don’t already have a tax pro to help you, consider hiring one to help you navigate this.

Some retirement plans, including 457s, have language that allow forced distributions, since many people either don’t understand the requirement or choose to ignore it. But your husband clearly was not in that group.

Your husband can call the 457 plan provider to find out what happened and how to prevent it from happening again. Or he might just roll this 457 into an IRA at another provider.

This advice assumes that the plan is a governmental 457, which allows rollovers into an IRA. If it’s a non-governmental 457, however — the kind used for highly paid executives in private companies — the rollover option doesn’t exist and you might be stuck with a higher tax bill.

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