RMD
Turned 70 1/2 in July 2018. Rolled company 401k with TRowePrice to Vanguard Rollover IRA and to Roth IRA. TRowePrice processed an RMD as part of the rollover and took 100% from After Tax Contributions and sent me a check for that amount. This was according to the company 401k plan. The remaining after tax contributions were applied to a Vanguard Roth IRA at my request. The entire 401k pre-tax amount plus the gain on after tax amounts were applied to a Vanguard Roll Over IRA. I am concerned that the RMD was not split between after tax and pre tax in the RMD. Will the IRS accept what TRP did with none of the RMD being taxable? If not, what must I do?
Permalink Submitted by Alan - IRA critic on Tue, 2018-11-06 15:26
The IRS will not have a problem because your after tax balance is considered to be in a separate sub account that can be distributed separately from the rest of the plan. Appyling the after tax balance first is not an unusual plan provision. You did a split rollover to different IRA destinations per Notice 2014-54 was wise, although the plan provision for applying the after tax balance first resulted in a lower tax bill for the RMD, but less after tax dollars for a non taxable rollover to your Roth IRA. Assuming that you have also completed any IRA RMD for 2018, it might be wise to consider an incremental Roth conversion from your TIRA account. This will in effect offset the plan provision to apply the after tax amount to your RMD, and level off your taxable income for this year with future years by reducing your future RMDS due to a smaller TIRA balance due to the conversion. However, there are other factors to consider that could affect this approach, therefore it is best to analyze the situation in view of your total financial picture. But to simply address your question, the IRS will go by the 1099R issued by the plan without a problem.