Over 70.5 employee rollover same year as retirement
Employee rolled over his full 401(k) plan into his IRA in 2011 but will retire in 2011. If so he should have taken a RMD based on 12/31/2010 balances before the rollover? IRS notice 97-75 seems to say that any distribution after age 70.5 is not a minimum required distribution and therefore eligible for rollover as long as he is an active participant. IHe was an active participant when it happened. Is this a correct interpretation?
If not, has he made an ineligible rollover to the extent of his RMD and now needs to remove the RMD amount with earnings before his tax filing deadline?
Permalink Submitted by Alan Spross on Fri, 2011-01-14 04:58
I don’t think that 97-75 applies to this situation because 97-75 applies to distributions in years starting at 70.5 which are not statutory RMD distribution years.
For rollovers in the same year as retirement, while the retirement may not have been known at the time of the rollover, the subsequent retirement made the rollover year into an RMD distribution year. Accordingly, the RMD was included in the rollover and becomes an excess contribution to the IRA. The excess contribution should be corrected according to the procedures for timely excess contribution corrections including the net income allocated to the excess amount.
The RMD should be reported as taxable income on line 16b of Form 1040 with “rollover” applying only to amounts in excess of the RMD. The excess contribution distribution from the IRA is not taxable, but any earnings that must accompany the corrective distribution would be taxable on line 15b.