Distribution from 401(k)
My client, who turned 70 on 04/10/2010, is still working and will work about 6 months this year and then retire. My question is, will she need to take a distribution from her 401(k) this year? Also, if she rolls it over to an IRA later this year, will she need to take a distribution from there if she wasn’t required to take one from her 401(k)?
Thank You.
Permalink Submitted by Alan Spross on Tue, 2011-02-08 00:14
FIrst, let’s assume that this plan allows employees to use the “still working” exception for when RMDs must begin like the vast majority of plans do. That would mean that her required beginning date is 4/1 of the year following her retirement (4/1/2012). While 2011 would be an RMD distribution year for her, she could postpone that RMD until early 2012.
However, the IRA rollover will accelerate the RMD and eliminate the above option unless she postpones the IRA rollover. If the IRA rollover is done this year, the plan will have to first distribute the RMD for 2011 before rolling the balance to an IRA and the first IRA RMD would be in 2012.
If she wants to defer all taxable income to 2012, she could leave the money in the plan until Jan, 2012, then take both the 2011 and 2012 RMDs in January followed by a direct rollover of the balance to an IRA. That would also eliminate this balance from being in an IRA on 12/31/2011 which would trigger an IRA RMD in 2012. Postponing per the above, she has no RMD or taxable distribution in 2011, has 2 401k RMDs from the plan in 2012 and her first IRA RMD related to this balance would not be due until 12/31/2013.
Note that IF this plan requires all employees to start RMDs at 70.5 OR if she is a 5% owner or close relatives are 5 % owners, her RBD would be 4/1/2011 because she reached 70.5 in 2010.
Permalink Submitted by [email protected] on Tue, 2011-02-08 00:23
Great. Thank You.