401k RMD the year of retirement
Background: Client is age 72 now and will retire Jan 2019 with an active 401k and outside IRA acct.
Question: When he retires and executes a direct rollover from 401k to the IRA, will the 401k custodian or the client be required to force the RMD from the 401k fist rolling over the remainder or can all the money be rolled to the IRA
Permalink Submitted by Alan - IRA critic on Tue, 2018-11-20 18:02
The year of retirement RMD should be distributed separately and not included in the IRA rollover. If this is not done, the RMD is still considered satisfied, but the RMD amount rolled into the IRA will become an excess regular IRA contribution (to the extent client was not eligible to make a regular TIRA contribution) that must be removed from the IRA with allocated earnings on the excess contribution. Sometimes this happens when an employee does an in service rollover early in the year when not planning to retire. Later in the year they decide to retire and the retirement changes the year to an RMD distribution year. Some of that in service rollover done earlier then becomes the RMD, and was not rollover eligible. Therefore, this situation can be caused by either the employer plan messing up or by the employee changing their plans and deciding to retire, unknown by the plan administrator back when the rollover was done.