RMD exclusion when working
Hello,
I have a client with a IRA-rollover with me…. he just turned 70 this january. He works at a new employer now partime (but enough days to be eligible)… I would like to have him start contributing to his 401k at work and roll the IRA-R into it, so he may get the RMD exclusion on these funds in total. This seems probable to me since the first RMD is not due (he is not 70.5 yet). Also, it would seem a IRA-R is fully portable into ERISA – so the fact that the funds are a different employer than where they originated, seems also abit too far fetched why this would be disallowed. ie. the law makes you stay at the same place? An opinion would be greatly appreciated! thank you! Tom
Permalink Submitted by Joseph Arsenault on Wed, 2011-02-02 21:55
Kind of hard to follow your fact pattern at the end, but here are a couple considerations:
1) He turns 70 1/2 during 2011, so an RMD is required from his IRA regardless of any future rollovers. The RMD due this year is not eligible for rollover. You will need to rollover the net amount. An RMD is not due when you turn 70 1/2, it is due in the year you turn 70 1/2.
2) If you are rolling over IRA funds to a 401k that allows this, you may only rollover pre-tax monies from that IRA. Any basis (after-tax dollars) must stay in the IRA.
I am also assuming he is not more than a 5% owner in the company since you said he works part time, sounds like he is an employee with no ownership interest.
I am sure you will get additional guidance on here. Hope those points give some additional clarity to you.
Permalink Submitted by Alan Spross on Wed, 2011-02-02 23:35
In addition, before proceeding with the rollover, the client should verify that:
1) The plan does not contain a provision requiring RMDs to start for everyone at 70.5. Some plans do carry this more restrictive provision vrs the IRS definition and is allowable.
2) Not only is the employee not a 5% owner, but neither is a family member such as child or parent who owns stock since those shares are attributed to employee for purposes of the 5% calculation (Sec 318a)