401k RMD before rolling to IRA
Client’s intentions were to roll his entire 401k to an IRA, and then make a qualified charitable donation with the entire IRA balance in 2007. He is highly compensated EE, age 85 earned income of 200k.
401k custodian forced a RMD minus witholding before the rollover to the IRA, per IRS rules.
Can the client take the net RMD, and roll it back into the IRA (60-day rule)either minus the witholding or make up the witholding, and then make the charitable donation?
Thanks for any input!
Permalink Submitted by Alan Spross on Thu, 2007-10-18 19:23
Unfortuneately, an RMD is not an eligible rollover distribution, so in this situation the taxation of the RMD cannot be avoided. For 2007, if he wants to make a charitable contribution he could still check into the more limited benefits of making it with the other funds and recovering as much as possible by itemizing deductions.
There is probably a good chance that Congress extends the QCD in one of their typical late fall tax bills, of course after the IRS has already sent out their forms for printing!* If this happens, he could wait and make the QCD next year when his RMD will probably be even larger. The status of this should be known in the next 7 weeks or so.
Note: Client should have been given his choice on the RMD withholding. There is no mandatory 20% on RMD distributions because they are not ERDs (eligible rollover distributions).