RMD’s required for Age 71? client retiring Jan 2017, just rolled 401k to IRA
I have a client who recently rolled over his 401(k) to an IRA this tax year. He is currently age 71, and has been eligible for the ‘still working’ exemption for RMD’s up to this point.
Now that he rolled over his 401(k) to an IRA in 2016, does he need to take an RMD for 2016, or can he wait until next year, as he had no IRA’s as of year end 2015 (everything was in his employer 401(k) up until now).
Permalink Submitted by Alan - IRA critic on Mon, 2016-11-07 22:18
There is no IRA RMD for 2016 since there was no IRA balance at the end of 2015. He needs to be sure that his retirement date is in 2017 as you indicated rather than in 2016 or he will have an excess IRA contribution to correct.
Permalink Submitted by Thom K. Hall, CFP CEPA on Mon, 2016-11-07 22:43
point of clarification – the 401(k) was rolled over, not contributed to an IRA – why would a rollover be considered an ‘excess contribution’
Permalink Submitted by Alan - IRA critic on Mon, 2016-11-07 23:02
If client happened to retire before year end 2016, that retroactively makes 2016 an RMD distribution year. In such a year the first distribution is deemed to apply to the RMD for the 401k. The IRA rollover would therefore include the RMD and RMDs are not eligible for rollover. Rollover of an amount not eligible for rollover is treated as an excess regular IRA contribution and must be corrected in the same manner. This is not expensive to correct, but very awkward when it comes to tax filing because 1040 reporting would not conform to the 1099R forms.
Permalink Submitted by Thom K. Hall, CFP CEPA on Tue, 2016-11-08 17:12
Thanks for the detailed and prompt explanation.