RMD from 401k in Year of Retirement
A client turns 73 this year and retired from his company last year. He wants to rollover his 401k to his IRA and not take his first RMD until early next year by taking advantage of the rule to take the first RMD by April 1 of the year after turning 73. The 401k custodian is telling him that because he turns 73 this year that they must first send him his RMD before issuing the direct rollover check to his IRA. Does that sound correct? We pushed back on the service representative but he reconfirmed they must first take his RMD amount out. Any thoughts or suggestions?
Thank you!!
Permalink Submitted by Alan - IRA critic on Tue, 2024-01-16 17:08
The rep is correct. Because 2024 is an RMD distribution year for the 401k, any distribution including a direct rollover is applied against the RMD, therefore the RMD should be taken first so that it is not included in the rollover. Client appears to want to avoid RMDs this year, which would result in 2 RMDs in 2025. That typically results in the 2025 taxes more than offsetting the tax savings in 2024. Nonetheless, if client still wants to avoid 2024 RMDs, the direct rollover to the IRA will have to wait until 2025.