Permalink Submitted by Alan Spross on Fri, 2011-08-05 18:31
I assume you are asking regarding the plan with the firm she just retired from. She has an RMD due for 2011, but her required beginning date is 4/1/2012. Since she has 7 months of earnings already this year, she should probably determine whether taking both RMDs next year will lower her overall tax bill as opposed to taking the 2011 RMD this year.
If she plans to roll the plan over to an IRA this year, then she must take out the 2011 RMD at the time since it is not eligible for rollover. If she plans on doing any Roth conversions and has after tax contributions in the employer plan, there is a procedure that she could use to get the after tax amounts into a Roth IRA without a conversion tax.
Also, if there is highly appreciated employer stock in the plan, NUA should be considered and a lump sum distribution can include the RMD.
Permalink Submitted by Paul Duncan on Fri, 2011-08-05 19:40
Thank you for your response. She does have quite a bit of income YTD. If we wait until January to roll her 401k over can she take her 2012 RMD in April 2013 and continue to defer the liability to April of the following year indefinitely, or at some point is she required to take two RMD’s in one year?
Permalink Submitted by Alan Spross on Fri, 2011-08-05 22:23
The 4/1 date only applies to the first RMD year for a plan or IRA owner. So the first year is the only one that can be deferred, and if so the second year is the only year with two RMDs due.
If the IRA rollover is done this year, the 2011 RMD will have to come out first or at the same time, thus no deferral. The 2012 RMD will be an IRA RMD due no later than 12/31/2012 based on the 12/31/2011 IRA balance.
If the IRA rollover is delayed until next year and the RMD not taken this year, both the 2011 and the 2012 plan RMDs will have to come out first or at the same time as the rollover. The first IRA RMD will then be for 2013 based on the 12/31/12 balance.
Finally, if the 2011 RMD is deferred to 2012, it will make the 2012 RMD slightly higher. For age 76, the RMD % (not divisor) is 4.55%. The 12/31/2011 balance on which the 2012 RMD is based and therefore the 2012 RMD will therefore be about 4.77% higher than if the 2011 RMD had come out in 2011.
Permalink Submitted by Alan Spross on Fri, 2011-08-05 18:31
I assume you are asking regarding the plan with the firm she just retired from. She has an RMD due for 2011, but her required beginning date is 4/1/2012. Since she has 7 months of earnings already this year, she should probably determine whether taking both RMDs next year will lower her overall tax bill as opposed to taking the 2011 RMD this year.
If she plans to roll the plan over to an IRA this year, then she must take out the 2011 RMD at the time since it is not eligible for rollover. If she plans on doing any Roth conversions and has after tax contributions in the employer plan, there is a procedure that she could use to get the after tax amounts into a Roth IRA without a conversion tax.
Also, if there is highly appreciated employer stock in the plan, NUA should be considered and a lump sum distribution can include the RMD.
Permalink Submitted by Paul Duncan on Fri, 2011-08-05 19:40
Thank you for your response. She does have quite a bit of income YTD. If we wait until January to roll her 401k over can she take her 2012 RMD in April 2013 and continue to defer the liability to April of the following year indefinitely, or at some point is she required to take two RMD’s in one year?
Permalink Submitted by Alan Spross on Fri, 2011-08-05 22:23
The 4/1 date only applies to the first RMD year for a plan or IRA owner. So the first year is the only one that can be deferred, and if so the second year is the only year with two RMDs due.
If the IRA rollover is done this year, the 2011 RMD will have to come out first or at the same time, thus no deferral. The 2012 RMD will be an IRA RMD due no later than 12/31/2012 based on the 12/31/2011 IRA balance.
If the IRA rollover is delayed until next year and the RMD not taken this year, both the 2011 and the 2012 plan RMDs will have to come out first or at the same time as the rollover. The first IRA RMD will then be for 2013 based on the 12/31/12 balance.
Finally, if the 2011 RMD is deferred to 2012, it will make the 2012 RMD slightly higher. For age 76, the RMD % (not divisor) is 4.55%. The 12/31/2011 balance on which the 2012 RMD is based and therefore the 2012 RMD will therefore be about 4.77% higher than if the 2011 RMD had come out in 2011.