Permalink Submitted by Alan - IRA critic on Fri, 2013-08-09 21:28
Yes, that is correct. However, those RMDs can be avoided by rolling the Roth 401k over to a Roth IRA before age 70.5. For most of those will working at that age, there are no RMDs while working but when they retire they will have one RMD year before rolling over to a Roth IRA.
Permalink Submitted by Wendy Mommaerts on Fri, 2013-08-09 23:22
If a client is not required to take a RMD on a regular Roth IRA why would they have to when it’s inside of a 401(k) plan, the Roth 401(k) contributions are after tax correct?
Permalink Submitted by Alan - IRA critic on Sat, 2013-08-10 00:04
Yes, they are after tax, but the Roth 401k was created as a different section of the tax code, and perhaps all employer plans were intended to require RMDs, or perhaps the RMDs reduced the potential cost of the designated Roth for budget purposes due to having RMDs limit the potential growth of the tax free earnings. However, it can all be avoided by rolling the plan over to a Roth IRA prior to age 70.5.
Permalink Submitted by Nelson Burner on Mon, 2013-08-12 21:04
I received a letter from ‘VANGUARD’ ,where I have my pre-tax Rollover IRA monies and my ROTH IRA, on January 2013 that since I will be 70.5 in 4/2013 that I have to pull out $8800 from my pre-tax Rollover IRA by 12/31/2013. My question is this, ‘Can I transfer the $8800, less federal & state tax, to my Roth IRA? Also, if I can, then I should be able to do this each year to meet my Required Minimum Distribution(RMD).Nelson
Permalink Submitted by Alan - IRA critic on Mon, 2013-08-12 22:01
Nelson, sorry but once you reach an IRA distribution year (2013 and all later years), you must take out your full RMD before converting any additional amount you wish. Therefore, you would have 8800 in taxable income times two if you converted that amount. You cannot convert the RMD amount because an RMD is not eligible to be rolled over, but you can convert any additional amount you want to. Also, I think if you read the letter from Vanguard it should state that you do not have to take out your 2013 RMD by 12/31 and for your first RMD only, you can wait until 4/1/2014. If you wait until then, you will have both your 2013 and 2014 RMDs to take in 2014. This does not change the fact that you cannot convert until after you take your 2013 RMD.
Permalink Submitted by Nelson Burner on Tue, 2013-08-13 02:18
Okay. Let’s see if I understand you correctly. First I pull out $8800 and put it in a taxable IRA. Then if I want to, I can pull out an additional amount from my pre-tax IRA, pay the Federal and State taxes, then put the remaining amount into my Roth account. I can continue doing this as long as I first take care of my RMD for each year. My goal here is to transfer as much of my pre-tax monies into my ROTH account after taxes are paid.Nelson
Permalink Submitted by Alan - IRA critic on Tue, 2013-08-13 16:50
That is correct, except that when you take out your RMD, you cannot put it into another IRA of any type. The RMD can be saved in a taxable savings or brokerage account or used for spending, but it cannot go into an IRA. After this is done, if you want to convert a different amount, you can do so. The taxes can be included in your quarterly estimates or you can have the taxes withheld but if you do that there will be less in your Roth IRA than if you paid the taxes with non IRA funds.
Permalink Submitted by Helen Park on Sat, 2014-01-04 09:56
Since we are talking about 401K here, allo me to share this to you. Regardless of 401(k) loans making good financial sense in theory, the quantity of 401(k) loan defaults is still higher than normal. Many people have trouble paying them back once they take from their retirement funds. Get more data here.
Permalink Submitted by Alan - IRA critic on Fri, 2013-08-09 21:28
Yes, that is correct. However, those RMDs can be avoided by rolling the Roth 401k over to a Roth IRA before age 70.5. For most of those will working at that age, there are no RMDs while working but when they retire they will have one RMD year before rolling over to a Roth IRA.
Permalink Submitted by Wendy Mommaerts on Fri, 2013-08-09 23:22
If a client is not required to take a RMD on a regular Roth IRA why would they have to when it’s inside of a 401(k) plan, the Roth 401(k) contributions are after tax correct?
Permalink Submitted by Alan - IRA critic on Sat, 2013-08-10 00:04
Yes, they are after tax, but the Roth 401k was created as a different section of the tax code, and perhaps all employer plans were intended to require RMDs, or perhaps the RMDs reduced the potential cost of the designated Roth for budget purposes due to having RMDs limit the potential growth of the tax free earnings. However, it can all be avoided by rolling the plan over to a Roth IRA prior to age 70.5.
Permalink Submitted by Nelson Burner on Mon, 2013-08-12 21:04
I received a letter from ‘VANGUARD’ ,where I have my pre-tax Rollover IRA monies and my ROTH IRA, on January 2013 that since I will be 70.5 in 4/2013 that I have to pull out $8800 from my pre-tax Rollover IRA by 12/31/2013. My question is this, ‘Can I transfer the $8800, less federal & state tax, to my Roth IRA? Also, if I can, then I should be able to do this each year to meet my Required Minimum Distribution(RMD).Nelson
Permalink Submitted by Alan - IRA critic on Mon, 2013-08-12 22:01
Nelson, sorry but once you reach an IRA distribution year (2013 and all later years), you must take out your full RMD before converting any additional amount you wish. Therefore, you would have 8800 in taxable income times two if you converted that amount. You cannot convert the RMD amount because an RMD is not eligible to be rolled over, but you can convert any additional amount you want to. Also, I think if you read the letter from Vanguard it should state that you do not have to take out your 2013 RMD by 12/31 and for your first RMD only, you can wait until 4/1/2014. If you wait until then, you will have both your 2013 and 2014 RMDs to take in 2014. This does not change the fact that you cannot convert until after you take your 2013 RMD.
Permalink Submitted by Nelson Burner on Tue, 2013-08-13 02:18
Okay. Let’s see if I understand you correctly. First I pull out $8800 and put it in a taxable IRA. Then if I want to, I can pull out an additional amount from my pre-tax IRA, pay the Federal and State taxes, then put the remaining amount into my Roth account. I can continue doing this as long as I first take care of my RMD for each year. My goal here is to transfer as much of my pre-tax monies into my ROTH account after taxes are paid.Nelson
Permalink Submitted by Alan - IRA critic on Tue, 2013-08-13 16:50
That is correct, except that when you take out your RMD, you cannot put it into another IRA of any type. The RMD can be saved in a taxable savings or brokerage account or used for spending, but it cannot go into an IRA. After this is done, if you want to convert a different amount, you can do so. The taxes can be included in your quarterly estimates or you can have the taxes withheld but if you do that there will be less in your Roth IRA than if you paid the taxes with non IRA funds.
Permalink Submitted by Helen Park on Sat, 2014-01-04 09:56
Since we are talking about 401K here, allo me to share this to you. Regardless of 401(k) loans making good financial sense in theory, the quantity of 401(k) loan defaults is still higher than normal. Many people have trouble paying them back once they take from their retirement funds. Get more data here.