401k RMD before rolling to IRA

Client’s intentions were to roll his entire 401k to an IRA, and then make a qualified charitable donation with the entire IRA balance in 2007. He is highly compensated EE, age 85 earned income of 200k.

401k custodian forced a RMD minus witholding before the rollover to the IRA, per IRS rules.

Can the client take the net RMD, and roll it back into the IRA (60-day rule)either minus the witholding or make up the witholding, and then make the charitable donation?

Thanks for any input!



Unfortuneately, an RMD is not an eligible rollover distribution, so in this situation the taxation of the RMD cannot be avoided. For 2007, if he wants to make a charitable contribution he could still check into the more limited benefits of making it with the other funds and recovering as much as possible by itemizing deductions.

There is probably a good chance that Congress extends the QCD in one of their typical late fall tax bills, of course after the IRS has already sent out their forms for printing!* If this happens, he could wait and make the QCD next year when his RMD will probably be even larger. The status of this should be known in the next 7 weeks or so.

Note: Client should have been given his choice on the RMD withholding. There is no mandatory 20% on RMD distributions because they are not ERDs (eligible rollover distributions).

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