Rollover from 401k, RMD, and after-tax contributions
I just met with a man that turns 70 1/2 this year and has to roll his 401k to an IRA or the company will send a taxable lump sum on 6/15.
He has about 14K in after-tax contributions and a total account value of about 335K.
Because he will be 70 1/2 this year, the RMD must come out before the rollover can occur. He also wants the 14K after-tax contributions distributed before the rollover.
I have assumed that the distribution of the after-tax money does not count towards the RMD and that he will have to take the 14K after-tax money AND another 12K (approximately) for the RMD.
If so, I assume that even the after-tax money is used in calculating the RMD because it was part of the account balance on 12/31/07.
Is this all correct?
Permalink Submitted by Alan Spross on Mon, 2008-05-19 23:40
Tom,
The after tax balance in the plan is included in the total balance on which the RMD requirement is based. This after tax balance will also count toward the RMD for the year of the transfer. Therefore, his entire RMD can be covered by after tax amounts and no additional amount needs to be withheld for the RMD. Apparently, he will have around 2k or so that he can can choose to rollover to his IRA or just keep it in a taxable account as a tax free distribution.
Accordingly, your second last paragraph is not correct, as an additional 12k will not be needed to complete the RMD and can be transferred to his IRA.
Permalink Submitted by Tom Brattain on Tue, 2008-05-20 03:10
Thanks!