401k RMD for a job changer over 72
I am over 72 and have a 401k with the current employer. I have been using the “still working” exemption from RMD so far. If I change a job in 2022, is there any way to avoid a 2022 RMD (the year of the job change) on the 401k? Does the “still working” exemption apply only to the 401k with the current employer? I also rollover the entire Roth 401k to Roth IRA at every year end.
Permalink Submitted by Alan - IRA critic on Fri, 2022-01-14 00:52
Yes, if you separate from service or retire after age 71, the year of separation becomes an RMD distribution year for the current plan. That means that any distributions including direct rollovers you executed in the separation year before separating are treated as being applied to your RMD.
It is good that you rolled out your Roth 401k balance near the end of 2021 since your Roth 401k balance on 12/31 will be small or perhaps 0. Since that value determines your 2022 Roth 401k RMD, you should be able to do a direct rollover to your Roth IRA in 2022 with little or no balance not eligible for rollover. But the 2022 RMD for the pre tax portion should be distributed and no included in any direct rollover of the pre tax 401k. If that isn’t done, the RMD will be satisfied by the direct rollover, but you will create an excess TIRA contribution equal to the amount of the RMD.
Another option is to roll your current 401k to the new employer 401k if that plan accepts rollovers. Unlike rolling to a TIRA, this will continue to defer RMDs from the 401k for future years (but not for 2022). Of course, if you do not expect to work into 2024, RMDs from the prior plan balance will not be deferred because if you retired in 2023, then a 2023 RMD would be due calculated on the entire 12/31/2022 balance in the new plan. In that scenario, you might prefer to roll the pre tax 401k to a TIRA.
Permalink Submitted by learner on Tue, 2022-01-25 21:16
If I change a job in 2022 and rollover the current 401k to the new employer’s plan, also in 2022, will I be subject to the 2023 RMD based on the balance on 12/31/2022? Because of the job change, I won’t be working for the new employer throughout 2022.
Permalink Submitted by Alan - IRA critic on Tue, 2022-01-25 21:34
In this case, the old plan would have to distribute your 2022 RMD to you before doing a direct rollover to the new plan. With the new plan, you would have to work into 2024 to avoid having a 2023 RMD due based on the new plan’s 12/31/2022 balance. The new plan’s 2022 year end balance will be heavily affected by the rollover from the old plan as you will not be working at the new employer long enough to build up much of a 2022 year end balance.