Direct Rollover of 401K to IRA for over 70 1/2 QCDs
If a participant who is over 70 1/2 does a direct rollover from company 401k plan to Individual IRA before the end of the year, is there anything limiting him from using Qualified Charitable Distributions from that IRA in the same year to satisfy the 401k’s RMD?
Under previous rules, my understanding was that the 401k provider would be required to take out the RMD before the rollover, but am unsure if any tax law changes have affected this. Thanks.
Permalink Submitted by David Mertz on Tue, 2018-07-31 14:55
There have been no changes to the tax law affecting this. The RMD from the 401(k) is required to be satisfied from the 401(k) before any other amounts are rolled over from the 401(k). The 401(k)’s RMD cannot be satisfied by a distribution from the IRA. A QCD can later be made from the IRA, but it won’t be the 401(k)’s RMD.
Permalink Submitted by Alan - IRA critic on Tue, 2018-07-31 17:36
To add further clarification, if the 401k rollover occurred before the 401k RMD was separately distributed, the 401k RMD is deemed satisfied by part of the rollover. However, since the 401 RMD amount was rolled to the IRA, an excess IRA contribution occurred and must be removed with earnings from the IRA. A QCD can still be done from the IRA, but would only apply to the IRA RMD if there was an IRA balance on 12/31/2017 from which the IRA RMD for 2018 was not yet completed. Otherwise, if no prior IRA balance a 2018 QCD would not offset any RMD but would still provide a tax efficient method of making the donation since the IRA distribution would not be included in AGI.
Permalink Submitted by Frederic Schilling on Wed, 2018-08-01 20:42
There is no RMD if a person is still working. What happens if she does a partial rollover to an IRA in 2018 but is still working until 12/31/18.
Permalink Submitted by Alan - IRA critic on Wed, 2018-08-01 21:14
If the age 70.5+ person is still employed at year end and not a 5% owner, there is no RMD and any rollover done that year is not affected by RMDs. Sometimes an inservice rollover is done while still working but later in the year the person retires. That retroactively creates an RMD distribution year, and the amount of the prior rollover is treated as including an RMD amount that was not rollover eligible and creates an excess IRA contribution.