Pension rollover at age 70
Jim went from ABC company to XYZ company when he was 70.5. He had a pension available to him, which he could roll as a lump sum to the 401k of XYZ. He did this and ABC did a direct transfer to XYZ’s 401k custodian (Fidelity). Should ABC have distributed an RMD before doing the transfer or is the full transfer of the lump sum fine with no penalty concerns for a missed RMD? Jim is not an owner of either company. Thanks
Permalink Submitted by Alan - IRA critic on Thu, 2019-01-31 15:21
His separation from ABC in the year he reached 70.5 (or later) results in that year being an RMD distribution year. Therefore, the RMD should have been distributed by ABC prior to doing a direct rollover of the remaining balance. This is the same scenario of the more typical IRA rollover in an RMD distribution year. The RMD is deemed to be complete, there should be two 1099R forms from ABC, and the RMD amount was not allowed to be rolled to XYZ. XYZ should be notified of the excess amount received and they need to distribute it plus any earnings. The XYZ 1099R should only show the earnings as taxable in Box 2a.
Permalink Submitted by Michael Eastham on Thu, 2019-01-31 16:53
Does the fact that the funds were in an employer only contribution pension fund and the total amount was a lump sum direct transfer to XYZ, make any difference?
Permalink Submitted by Alan - IRA critic on Fri, 2019-02-01 01:06
No, that would not change my prior reply. The funds moved by direct rollover which is technically and two part transaction – a distribution followed by a rollover contribution. The distribution will include the RMD. I assume that a 1099R coded G was issued.