IRA Rollover (RMD not taken)
mom inherited her son’s 401(k); a portion of the account was after-tax dollars
The plan paid out the all the after-tax dollars directly to mom – the reminder of the account (pre-tax dollars) was rolled to an inherited IRA.
Does the after-tax payout count towards her RMD?
Here is my question/concern
the first dollars withdrawn go towards the RMDs (correct?) but shouldn’t the RMD have been taken on a pro-rata basis? Since it wasn’t does the payout still qualify as an RMD? Is the IRA rollover whole?
Thank you
Permalink Submitted by Alan - IRA critic on Tue, 2015-03-10 23:20
Yes, any distributions count toward the RMD whether taxable or not. Distributions are generally (not always in the case of pre 1987 after tax amounts) pro rated, but in this case the only distribution was the after tax money. The pre tax money was moved as a direct rollover to the inherited IRA. While the frequent practice of distributing basis and rolling over the taxable portions has persisted even after the 2002 changes that allowed rollover of after tax contributions, pro rating was a gray area that produced various isolation of basis strategies until Notice 2014-54 last Sept resolved things and authorized the taxpayer to direct the destination accounts for pre tax vs post tax amounts when requested at one time. Therefore, everything is OK for this client.