IRA Rollover to 401K Plan
Have an employee that is still working and contributing to his 401(k) at age 73. He is not a 5% owner so he is not required to take an MRD from the plan. This year he rolled a portion of the plan into an IRA (for better investment options), but now is required to take an MRD from the IRA. The plan allows rollover contributions from IRAs. Is there any reason why he cannot or should not roll the money back to the 401K to avoid taking the MRD? The MRD would increase his taxable income by about $78,000. He’s only planning to work another 1-2 years, but it seems it would be worthwhile to avoid the MRD, if possible.
Am I correct in that he can move it back to the 401K without any issues? And/or is there anything else that I am forgetting about?
Permalink Submitted by Alan Spross on Sat, 2007-09-29 04:06
Yes, he can avoid the RMD on the amount that he transferred into the IRA if he moves it back before it becomes part of a year end balance. If the plan will accept incoming IRA transfers at all, they should be willing to accept what was a conduit IRA from their own plan. One caveat here is that if he has ANY OTHER IRA accounts that had a 12/31/06 balance, he should take his RMD before rolling anything back into the plan.
However, before moving it back, perhaps a projection should be made regarding his estimated RMDs from his combined 401k and IRA assets after he retires. It is possible that within a couple years, those RMDs would be so high that 78,000 plus his taxable earnings this year may not be so bad. Of course this depends on how much his earnings will be.