RMD from 401(k) In-Service
I have a client who this year needs to take her RMD’s from her IRA. She wants to keep her IRA accounts working as hard as she can, while she still continues to work and contribute to her 401(k).
Is it possible to do an in-service rollover from her current 401(k) to her IRA’s, then use part/all of this in addition to other cash in her IRA to satisfy the IRA RMD for the current year?
Once the in-service is done, that is technically like titled IRA money. Would the IRS care where this came from since she’s still working and doesn’t need to take distributions from the 401(k) yet?
Permalink Submitted by Alan - IRA critic on Mon, 2017-06-19 22:07
Funds she is allowed to roll over from the 401k to the IRA are in all respects IRA money after the rollover, and can therefore be used to meet the IRA RMD. All the IRS cares about is that the 1099R reporting her IRA distributions meets the amount required for the IRA RMD. Note that if client happens to retire in any year in which a 401k rollover was done, that year will become the first 401k RMD distribution year, and to the extent of the 401k RMD would not be eligible for rollover to an IRA. That would create an IRA excess contribution which would need to be corrected.
Permalink Submitted by Nicholas Rohde on Tue, 2017-06-20 13:39
Thank you for that clarity. I had assumed as much but wanted to be sure we had the details in. She plans to work another 4-5 years so we will be able to make sure the year she retires we take a separate 401(k) RMD.
Permalink Submitted by William Tuttle on Tue, 2017-06-20 14:48
If her 401k allows it and the plan has reasonable costs. Your client should consider rolling the IRAs into the 401k. This will not escape this year’s RMD, but it will eliminate RMDs until the year the client stops working