RMD From 401k Upon Separation From Service
In a previous post the question was does a post RMD age person who retires from their job have to take the RMD out at the time of a rollover to an IRA and the answer was yes. However the custodian did not do this they rolled the full amount. Is the resulting next step simply to take the RMD before 12/31 from the IRA?
Permalink Submitted by Alan - IRA critic on Tue, 2018-05-29 20:50
What occurred here was the 401k has been completed and is a taxable distribution on line 16 of Form 1040. Then the person is deemed to have made a regular IRA excess contribution to their IRA since a RMD is not eligible for rollover. The person should request that the RMD amount be distributed from the IRA with allocated earnings. The earnings included with the IRA distribution is taxable in the year the 401k rollover was done. This probably will not cost much, however the 401k plan should be issuing two 1099R forms, one for the allowed direct rollover and the other for the amount of the RMD. If they don’t the person’s 1040 will differ and the person will have to attach an explanatory statement with their return about the difference. They will also have to explain the reason for the corrective distribution to the IRA custodian, therefore tax reporting will be more challenging than the actual cost.
Permalink Submitted by Kirk Hackbarth on Tue, 2019-03-19 17:04
Case facts:Client is retiring this and will be 70 1/2. Does she need to take an RMD from her 401(k) before rolling it over to an IRA?
Permalink Submitted by Alan - IRA critic on Tue, 2019-03-19 17:12
Yes, the 2019 RMD must be distributed and not included in the direct rollover, despite client’s RBD not being until 4/1/2020. If client did not want any of the 2019 RMD distributed because she wanted to defer it to 2020, she would also have to postpone the IRA direct rollover to 2020.