RMD

Submitted by Eric Gilbert on Sun, 2017-11-12 17:52

Hi,
I have both an IRA and a 401k and I have turned 70.5. I am going to take my RMD with the fund sponsor for the IRA prior to 12/31/17. But, although I am still employed, I will be retiring on 12/31/17. So, when am I required to take the 401k RMD…before 12/31/17 or before 12/31/18 or sometime in between? If the answer is prior to 12/31/17, can I take my 401k RMD from the mutual fund sponsor where my IRA is held to satisfy the requirement? Thank you.



Submitted by Alan - IRA critic on Sun, 2017-11-12 21:42

  • The 401k RMD and IRA RMD must be completed separately. One cannot cover for the other. If you turned 70.5 this year then 2017 is your first RMD distribution year for your IRA and also for your 401k because you will have retired in 2017. For both of these accounts you have a one time choice to defer all or part of your 2017 till no later than 4/1/2018, but if you do that you will also have to take out your 2018 RMD in 2018. 
  • You may want to defer your RMDs until 2018 if you will be in a lower bracket in 2018 because you will not be working in 2018. Of course, this decision depends on the amounts of your RMDs in relation to what your salary has been.
  • If you want to roll your 401k RMD to an IRA, you will have to take out the RMD including the current year before doing the rollover. For example, if you do not take your 2017 401k RMD this year, and plan an IRA rollover in January, the 401k plan will have to distribute both your 2017 and 2018 plan RMDs to you and not include them in the amount rolled over. 
  • I would avoid doing a 401k rollover this year without distributing the RMD because that will result in your RMD being rolled over, and that will create an excess IRA contribution. Avoid that because it is a mess to correct and report.
  • If you have appreciated employer shares in your 401k, check out whether NUA is viable. NUA allows the gains on these shares that occurred in the plan to be taxed at the lower LT cap gain rate if you do a qualified lump sum distribution of the entire plan. These shares could cover both your 2017 and 2018 plan RMDs. For NUA to be realistic, you probably need to have worked there for many years, and the cost basis for these shares (what the plan paid for the shares when contributed to your account) should be under 30% of the current value in most cases.
  • As you can see, there is alot of planning needed for this year and next. Things get simpler after that because both NUA and your first year RMDs are one time planning issues with the potential to either save you tax dollars or cost you tax dollars.

Submitted by Eric Gilbert on Sun, 2017-11-12 21:50

Thanks.

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