RMD

Submitted by Eric Gilbert on Wed, 2018-01-10 14:43

My mom retired on 12/31/17 and is deferring her 2017 RMD until 2018 (just turned 70.5 in late 2017). When submitting her RMD request, is it safe to simply withhold 10% federal tax?



Submitted by Alan - IRA critic on Wed, 2018-01-10 16:19

You can have withholding taken from any IRA Distribution including RMDs, but the withholding only applies to the year in which the distribution is made. In other words, if her 2017 RMD is distributed in 2018 (she has up to 4/1/2018) the withholding will apply to the 2018 tax year, not 2017. Deferral of the 2017 RMD will result in two RMDs being due in 2018. Also, if she had a 401k or similar employer plan, her retirement on 12/31 will result in an RMD due for 2017 from that plan, whereas if her retirement was effective in January, there would not be any 401k RMD since she would still be working at the end of the year (Unless she owned over 5% of the company). Finally, if your question did refer to her 401k or similar, the RMD for prior or current years would have to be distributed to her at the time of any IRA rollover and could not be rolled over to an IRA.

Submitted by Eric Gilbert on Wed, 2018-01-10 17:50

So I’m 100% positive…are you saying that my mom must request her 401k RMD at the same time she requests her 401k rollover into her IRA?  I’m asking because our original plan was to immediately request her RMD be sent to her address and then decide where to roll the remainder of the 401k down the road a bit.  Thanks for your help!   

Submitted by Alan - IRA critic on Wed, 2018-01-10 19:03

  • Yes,she should be able to request the RMD well before doing the rollover. And if she didn’t the plan administrator would usually know that the RMD needed to be distributed and would do so before or at the same time as the rollover to prevent the RMD from being included in the rollover. However, it might also be a good idea to verify that she was no longer considered employed on Jan1, since if she was then there would be no 2017 RMD required. 12/31 retirements raise the question as to when the employee actually retired. She could simply ask them if she is required to take an RMD for 2017. If so, then she is dealing with two RMDs to be distributed before the rollover, otherwise it would just be the 2018 RMD.
  • Most large IRA custodians will assist in ordering the rollover from the employer plan, once an IRA is opened with them. 
  • Note that if she worked with the 401k employer for many years and has employer stock in her 401k plan that has appreciated alot after it was added to the plan, she should consider NUA. NUA is generally not advisable if the cost basis (share value upon purchase) is over 30% of the current value. 
  • Finally, if she ever made after tax contributions to the plan (would show on plan statement), then the after tax amounts should be rolled over to a Roth IRA and not to a traditional IRA.

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