RMD question
My father turned 70 in Jan of 2008. He was employed until Sept 30, 2008 when he retired. In July he took the RMD on his existing IRA account. In Oct 2008 he took a lump sum payout of his pension and transferred it into a new IRA. He also transferred a portion of his 401(k) into the new IRA. The total value of the new IRA is just over $300K. When is he required to take a RMD on the amount in his new IRA? Thank you for your help and sharing your knowledge
Permalink Submitted by Alan Spross on Thu, 2008-11-06 19:16
The RMD for the qualified plans should have been withheld by the plans because 2008 is an RMD year since he retired this year. An RMD cannot be rolled over. If the plans failed to hold back the RMD amounts, the RMD is still satisfied, but your father then has an excess contribution to the IRA that must be corrected.
The method for correction is the same as the usual IRA excess contribution procedure. The IRA custodian should be told the amount of the excess contribution, the date it was contributed, and then the plan will calculate either the gain or loss in the IRA during the period of contribution and distribute that amount from the IRA.
Everything would then be square, and the 2009 IRA RMD would be a typical calculation based on the 12/31/08 IRA balance.
HOWEVER, you indicated that only a portion of the 401k was transferred, so perhaps the RMD did not get transferred? What was done with the rest of the 401k?
Permalink Submitted by steve harper on Thu, 2008-11-06 19:43
I appreciate your response. We thought an individual could transfer money from a 401(k) into an IRA during the year they turned 70 and 1/2 and retired and not have to take the RMD until April of the next year. In this case the RMD would not have to be taken on the new IRA until April 2009 based on the 12/31/08 balance. The remaining balance of the 401(k) is still in the 401 and is likely going to be used to pay off a mortgage on a vacation home at this point.
Permalink Submitted by Alan Spross on Thu, 2008-11-06 20:39
This issue is confusing since the RMD requirement for the qualified plans could be deferred to the required beginning date if there were no distributions or rollovers. Therefore, the 2008 RMD on the portion still remaining in the 401k can be taken as late as 4/1/2009.
The portion that was rolled over, however, triggers the RMD which should not have been rolled over. Sounds like the plan overlooked this requirement, and if so, transferred the RMD requirement to the IRA for this year. Although the IRA RMD requirement was taken from the IRA prior to the rollover, the rollover of the plan RMD to the IRA will trigger the need to take the corrective distribution. You cannot characterize this distribution as an IRA RMD requirement that can be deferred to next April 1st because it is an excess contribution to the IRA and is therefore treated as an excess contribution rather than an RMD. The plan RMD is deemed satisfied whether it was rolled over or not.
Permalink Submitted by steve harper on Thu, 2008-11-06 21:44
Great! I appreciate your knowledge on this subject. You are a huge help.
Let’s say that my dad had taken the RMD out of his 401(k) prior to transferring any of it to the IRA as he should have. Then there is not an excess contribution, correct?
In this scenario my question then becomes how does the rollover of the lump sum pension benefit into the IRA affect his RMD? Does he have until April 1, 2009 to take the RMD?