Incorrect RMD advise from Custodian
Client has rollover IRA and existing funds still in 401(k), client was born in last six months of 1941, took RMD from outside rollover IRA this year, Custodian/Plan Sponsor said they did not need to take an RMD from plan until they roll it out into an IRA in the future? I know funds in a qualified plan have to be calculated and taken separately from other rollover IRA’s. Regardless employed or not employed do they not still have to take RMD from qualified plan by April. My thoughts, or can they delay until later/next year
Thank you
Permalink Submitted by Alan - IRA critic on Tue, 2014-02-25 15:34
While there are a few qualified plans that require RMDs to begin for all employees at 70.5 for those still working, most plans allow employees who are not 5% owners of the company to delay RMDs until after they separate from service. For example, if this client separated anytime this year, this year would become an RMD year with the first RMD due no later than 4/1/2015. But should client choose to roll over the plan to an IRA after separating, the RMD for this year would be distributed then and could not be included in the rollover. So it sounds like the plan administrator was correct.
Permalink Submitted by steve jackson on Tue, 2014-02-25 16:20
Thank you Alan, you are a gem. You mentioned that if he rolls over the plan to an IRA after seperation this year the RMD would be distributed, do you mean the RMD portion would have to be taken out of the account on the plan side this year prior to rollover to the IRA and taken out there.Thanks
Permalink Submitted by Alan - IRA critic on Tue, 2014-02-25 20:06
Yes. Most plans will just distribute the RMD separately from the rollover, but they could also withdraw the RMD and hold it for distribution later. Note that sometimes while the employee is still working they rollover part or all of the plan balance, but then retire before the end of that year. The retirement changes that year to an RMD year, making the RMD portion of the rollover an excess IRA contribution that needs to be withdrawn from the IRA. So if the client expects to retire before the end of the year, it is better to wait and do the IRA rollover after retirement.