Rolling over an IRA after age 70 1/2
If a person over age 70 1/2 wanted to roll over an IRA and did not as of yet take a RMD. Is this allowed or does the RMD need to be distributed 1st? I heard of something called the 1st dollar rule. Violating this rule causes an excess contribution into an IRA and the RMD amount is now subject to a 6% penalty for an over contribution. Is this true?
Thanks,
Permalink Submitted by Alan - IRA critic on Wed, 2018-05-02 20:19
Yes, that is basically correct. An IRA can be moved by either direct transfer (best method) or by a 60 day indirect rollover. The former is not reportable, does not count toward the one rollover limitation and can be done prior to completion of the annual RMD. However, any distribution payable to the person in an RMD year is deemed to apply to the RMD if the RMD has not been completed. If that distribution is then rolled over, an excess IRA contribution is created since an RMD is not eligible for rollover, and this is what you are referring to. The excess contribution must be corrected in the usual fashion and if not removed would be subject to the 6% excise tax.