Permalink Submitted by Alan Spross on Fri, 2010-12-03 17:24
No. Once he reaches an RMD distribution year, the RMD must be distributed prior to doing a Roth conversion. His first RMD distribution year starts 1/1/2012 despite the fact that his RBD is not until 4/1/2013. Therefore, conversions done to avoid RMDs must be done by the end of 2011.
If conversions are otherwise advisable for him, perhaps he should convert now. He can defer the income to 2011 and 2012. But it is more important that conversions fit into an overall plan than to avoid RMDs. Note that the first RMD is only 3.65% of the account balance. Also, in any RMD year after the RMD is taken, he could convert additional amounts perhaps up to the top of his current bracket. There are plenty of flexible options once it is determined if converting is appropriate at all.
Permalink Submitted by Alan Spross on Sat, 2010-12-04 01:49
For the vast majority of plans, there is no RMD requirement as long the employee is still working. In the year of retirement, an RMD is due but does not have to be taken out until the following April 1st. But any employee who is also a 5% or greater owner MUST take RMDs at 70.5, just as if the 401k was an IRA.
And if he rolled his IRA into the employer plan, RMDs would also be avoided on the former IRA balance until he retired. With regard to part time employees, the plan document defines the number of hours required to still be considered employed for plan purposes.
Permalink Submitted by Alan Spross on Fri, 2010-12-03 17:24
No. Once he reaches an RMD distribution year, the RMD must be distributed prior to doing a Roth conversion. His first RMD distribution year starts 1/1/2012 despite the fact that his RBD is not until 4/1/2013. Therefore, conversions done to avoid RMDs must be done by the end of 2011.
If conversions are otherwise advisable for him, perhaps he should convert now. He can defer the income to 2011 and 2012. But it is more important that conversions fit into an overall plan than to avoid RMDs. Note that the first RMD is only 3.65% of the account balance. Also, in any RMD year after the RMD is taken, he could convert additional amounts perhaps up to the top of his current bracket. There are plenty of flexible options once it is determined if converting is appropriate at all.
Permalink Submitted by Jim O on Fri, 2010-12-03 23:29
Thanks
Permalink Submitted by Alan Spross on Sat, 2010-12-04 01:49
For the vast majority of plans, there is no RMD requirement as long the employee is still working. In the year of retirement, an RMD is due but does not have to be taken out until the following April 1st. But any employee who is also a 5% or greater owner MUST take RMDs at 70.5, just as if the 401k was an IRA.
And if he rolled his IRA into the employer plan, RMDs would also be avoided on the former IRA balance until he retired. With regard to part time employees, the plan document defines the number of hours required to still be considered employed for plan purposes.