RMD 401(k), >70 1/2, rollover to IRA?
Client is over 70 1/2, just retired and was making current contributions to his employer’s 401(k) plan until he retired. I understand he can wait to take his first RMD from the 401(k) plan until next April 1 (April 1st of the year following retirement). However, if he were to roll this over to a traditional IRA prior next April 1st, does this taint the delayed distribution? Would he then need to take an RMD by the end of this year?
Permalink Submitted by Alan Spross on Thu, 2010-07-01 20:22
Yes, in any rollover the RMD due for the year of rollover cannot be rolled over. It must either be paid out to the employee prior to rollover or withheld by the plan and distributed to the employee by year end. Many plans would probably not want to offer the latter method.
For this client, 2010 is referred to an RMD distribution year even though that RMD could otherwise be deferred to next April’s RBD. If the rollover was postponed until next year, then two RMDs must be taken or withheld from the rollover, ie the 2010 RMD and the 2011 RMD.
Permalink Submitted by Cathy Attig on Thu, 2010-07-01 20:28
I understand the RMD must still be taken in the event of the rollover but…..
if the 401(k) is rolled over to an IRA now (vs. remaining in the 401(k)), can the first RMD still be taken as late as next April 1st? Or would it have to be taken by 12/31 of this year?
Permalink Submitted by Alan Spross on Fri, 2010-07-02 00:04
Actually, the Regs indicate that this first RMD can be held back from the rollover and distributed by the “date required in Sec 401(a)9”. That date for the year of separation would be 4/1 of the following year. Plans are allowed to handle RMDs in this fashion and it overrides the usual provision that the first distribution taken automatically includes the RMD for that year.
I do not know how many plans would be willing to hold the RMD into the following year or even to the end of the current year, but it they are willing to do that, the RMD can be delayed. Otherwise, it needs to be distributed prior to the IRA rollover.