IRA Required Minimum Distribtution Technical requirement
If I am age 75 and I was laid off this year, and rolled monies from 401k to IRA. Which month end balance do I use to calculate my required minimum distribution?
If I am age 75 and I was laid off this year, and rolled monies from 401k to IRA. Which month end balance do I use to calculate my required minimum distribution?
Permalink Submitted by Alan Spross on Thu, 2010-12-02 18:34
If you did a direct rollover from the 401k after separating from service, your annual RMD should have been distributed to you then by the plan administrators, and NOT have been part of the IRA rollover. If this did not happen, you will have to have to remove the amount of the RMD from the IRA with associated earnings. You would tell the IRA custodian that the RMD amount is to be treated as an excess contribution and distributed to you.
The RMD amount was based on the 12/31/09 account balance using the age you attain in 2010. If you get this done before year end, the amount will be out of your IRA and not included in your 12/31/2010 IRA balance. That will reduce the amount of your 2011 IRA RMD.
Permalink Submitted by BruceM on Fri, 2010-12-03 07:20
Alan
Just to clarify…
The OP indicates he was laid-off, not that he retired. According to Pub 575
[i]Required beginning date. Unless the rule for 5% owners applies, you generally must begin to receive distributions from your qualified retirement plan by April 1 of the year that follows the later of The calendar year in which you reach age 701/2, or The calendar year in which you retire from employment with the employer maintaining the plan.[/i]
So if his intent is to return to work, would he still have to take his RMD? Or does the act of rolling over his 401(k) balance to his IRA mean that he has, by default, ‘retired’ from the employer?
BruceM
Permalink Submitted by Alan Spross on Fri, 2010-12-03 17:51
Yes he is deemed retired unless he actually is reinstated with the same employer, probably by the end of the year. Intent would not be a factor.
Now if he was actually recalled, he could probably take the position that the separation was nullified, and therefore this is no longer an RMD year. There is a closely related provision that if the plan itself requires an RMD (eg employee still working but is age 71) this is NOT a statutory RMD and is therefore rollover eligible. In this case, however, if the rollover was done after the layoff and included the RMD, his reinstatement by year end would eliminate the need to consider the IRA rollover an excess contribution. I do not know how long an employee would have to secure re hire and be considered to have erased the statutory RMD as well as the plan RMD, if more restrictive.
I suppose if laid off employee requests a rollover or distribution, the plan cannot waive the RMD due to re hire potential, but if rehired within 60 days, any RMD funds that employee has could be rolled over to an IRA or perhaps even back to the plan.
Permalink Submitted by BruceM on Sun, 2010-12-05 05:32
Alan
That answers my question.
Thanks
Bruce