74 yrs old… move from 401k to IRA – while still working

Submitted by William Steih on Thu, 2024-02-29 22:09

74 yrs old… still working & contributing to Co. 401k Plan… In-Service Distribution to IRA… when do RMDs begin on IRA$s ?

The draw of IRA is to purchase an annuity with a Guaranteed Lifetime Withdrawal Benefit (GLWB). Client like the idea of a personal pension and she has limited assets available to generate retirement income.

Challenge is those $s moved to the IRA become subject to RMDs.
My initial reaction is ‘so what’… just increase the 401k deferral by an equal $ amount to offset.
Allow the IRA to continue to incubate for purposes of a larger GLWB %… as we could have some portion of 401k $s set aside in completely separate IRA to tap for RMD $ amounts.

So, 2 questions:
1. Given Client will be age 74 in April 2024… what is the initial RMD %?
2. Given the IRA will be funded during 2024… and the first instance of a balance on Dec 31st being held in an IRA will be 12/31/2024… does that mean first RMD must be taken on/prior to April 1, 2025?

Any other considerations I may be missing?

Thanks!

WAS



Submitted by Alan - IRA critic on Thu, 2024-02-29 22:27

If no IRA balance on 12/31/2023 the first IRA RMD year will be 2025 using the Uniform Table and age 75. However, if client retires before the end of 2024, then 2024 will become an RMD year for the 401k, and that RMD would be retroactively applied against the rollover to the IRA, creating an excess regular IRA contribution. This is a mess to correct and report.
The first IRA RMD in 2025 must be taken in 2025. April 1 (RBD) only applies to the year this client turned 72 and does not extend to any later initial IRA RMD year. 

Submitted by Perry Samuels on Sat, 2024-03-02 20:21

Client is 75 years old and still working but at a reduced schedule.  Client is still participating in , and contributing to, 401K but, in anticipation of retiring sometime in 2024, rolled over then existing balance in 401K in late December 2023 to a newly opened IRA.  While no RMD needed to be taken from 401K, should an RMD have been taken from the new IRA for calendar year 2023?

Submitted by Alan - IRA critic on Sat, 2024-03-02 20:57

No, the first IRA RMD on this balance will be for 2024 using the 12/31/2023 balance. However, if there is any balance left in the 401k, the 2024 401k RMD should be distributed before any direct rollover done in 2024 if client will be retiring before the end of 2024.

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