Slott Report dated 7/12/2018

Submitted by Susan Boling on Fri, 2018-07-13 16:51

I noticed on the 2nd question in this report there was a client with a 401k, still employed, delaying the RMD. They mentioned doing an inservice withdrawal for $100,000 and rolling to an IRA (that did not have a previous 12/31 value so I know the IRA isn’t due a RMD) then doing the QCD for the full $100,000. The answer was yes that they could do this however there wasn’t really any mention of the fact that a RMD on a plan is only delayed while the funds are in the plan. So when they take the $100,000 from the plan, if the plan holder was 70.5 or older, the RMD on that $100,000 is due prior to the funds rolling to the IRA – and they should get a 1099R from the plan for that RMD. And since a QCD isn’t an option on the 401k, I don’t see how they can really avoid the taxation on the RMD for the plan. Am I missing something?



Submitted by Alan - IRA critic on Fri, 2018-07-13 18:34

  • Yes. There is no RMD for the 401k plan while still employed presuming participant was not a 5% owner. There is no RMD for the IRA either since the IRA did not have a balance on 12/31/2017.  The 1099R for the 401k plan would indicate a G coded direct rollover (in service), and would not be taxable. The 1099R from the IRA custodian would show a taxable distribution, but that is offset by reporting a QCD. Therefore, there is no taxable income and no deduction for 2018 since participant cannot itemize the QCD. The net effect here is that future RMDs from the 401k or subsequent IRA post rollover balance has been reduced since 100k has left the plan. The tax on current RMDs has not been reduced because there were no current RMDs unless the participant had an additional IRA with a balance on 12/31/2017.

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