RMD’s for mid-year direct rollover
I have a client who rolled over funds (in service w/d) from an employer-sponsored qualified plan mid-year into an IRA. He turned 72 last month. Since the calculation for his required distribution considers end of last year’s account value, is his RMD for this newly established IRA not due until NEXT year? He had only a small IRA balance on 12/31/2009, but his total IRA balance today is much larger, due to the mid-year rollover. Logic tells me that his RMD for 2010 will indeed be based on only his 12/31/2009 IRA balance, but want to be sure.
Permalink Submitted by Alan Spross on Sun, 2010-05-30 21:59
Yes, you are correct that his 2010 IRA RMD will not be increased due to the rollover, but his 2011 IRA RMD will reflect the higher IRA value as of 12/31/2010.
You indicated that the QRP distribution was “in service”, so there will be no QRP RMD for 2010 UNLESS he separates from service prior to year end. If that were to occur 2010 would become an RMD distribution year for the QRP. But since that balance currently resides in the IRA, he would have to withdraw funds from the IRA to the extent that his 2010 QRP RMD was rolled over improperly to the IRA. It would be handled as an excess contribution to the IRA. Accordingly, it would work to his advantage not to retire until 2011 to avoid having both a full RMD and earned income being taxable in the same year.
Permalink Submitted by Jill Williams, CFP on Sun, 2010-05-30 22:53
Excellent response, thank you. He does not intend to retire for 2 more years, and he fully understands that his QRP (while active) is exempt from RMD, and that he will now have to take RMDs moving forward on the rollover IRA. Thanks again.