Rollover prior to RBD
Scenario: Individual turning 73 in 2024 is an active participant in 401k Plan (non-owner) and rolls over plan assets to an IRA through in-service withdrawal. They retire later in same year but have little to no balance in 401k plan at that time.
Questions: Would there be a retroactive requirement to take RMD from IRA for 2024 even though rollover executed from plan prior to Required Beginning Date (4/1/25)? Or would plan be required to have participant satisfy RMD from in service rollover with balance going to IRA since turning 73 in year of distribution?
Permalink Submitted by Alan - IRA critic on Tue, 2024-03-05 22:22
The latter, but this is an IRS rule. If the participant retires in 2024, the first distribution from the 401k is retroactively applied to the RMD, so the RMD is satisfied and must be reported as taxable notwithstanding the 1099R. However, the amount of that RMD becomes an excess regular TIRA contribution to the extent that the taxpayer was eligible to make an IRA contribution that was not otherwise made.This excess must be distribted from the IRA with allocated earnings and any such earnings will be taxable in 2024.