IRA Transfer to 401(k)
Client turned 71 in July 08 (70.5 in Jan), still working with a 401(k) and an IRA. She does not want to takle any money from the IRA. Can she transfer the entire IRA to the 401(k) (no after tax dollars in IRA), since she has not yet reached her RBD?
Permalink Submitted by Alan Spross on Mon, 2008-08-04 23:26
Al,
No, she would have to take out the RMDs in this case, whereas she would not if she was making just an IRA to IRA transfer. In addition, these transfers are reported the same way as the more frequent QRP to IRA direct rollovers, ie the 1099R is coded with a “G”, and the transaction is considered a distribution and rollover. The following Reg section covers the treatment of the RMD:
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Q–7: When is a distribution from a plan a required minimum distribution under section 401(a)(9)?
A–7: (a) General rule. Except as provided in paragraphs (b) and (c) of this Q&A, if a minimum distribution is required for a calendar year, the amounts distributed during that calendar year are treated as required minimum distributions under section 401(a)(9), to the extent that the total required minimum distribution under section 401(a)(9) for the calendar year has not been satisfied. Accordingly, these amounts are not eligible rollover distributions. For example, if an employee is required under section 401(a)(9) to receive a required minimum distribution for a calendar year of $5,000 and the employee receives a total of $7,200 in that year, the first $5,000 distributed will be treated as the required minimum distribution and will not be an eligible rollover distribution and the remaining $2,200 will be an eligible rollover distribution if it otherwise qualifies. If the total section 401(a)(9) required minimum distribution for a calendar year is not distributed in that calendar year (e.g., when the distribution for the calendar year in which the employee reaches age 701/2 is made on the following April 1), the amount that was required but not distributed is added to the amount required to be distributed for the next calendar year in determining the portion of any distribution in the next calendar year that is a required minimum distribution.
(b) Distribution before age 701/2 . Any amount that is paid before January 1 of the year in which the employee attains (or would have attained) age 70 1/2 will not be treated as required under section 401(a)(9) and, thus, is an eligible rollover distribution if it otherwise qualifies.
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For purposes of the above Reg, substitute “IRA owner” for “employee”.
Permalink Submitted by Al Fry on Mon, 2008-08-04 23:46
Alan, TKU. So, even though she is still working, and has not yet reached her RBD, she must take an RMD from the IRA before moving it to the 401(k) at the employer where she is working. Is that bacause this is her first distribution year? Al