RMD’s and rollovers/transfers
Can someone help confirm that I have this right:
RMD’s for the year must be done before any rollovers, but RMD’s could be done after a trustee to trustee transfer (direct rollovers)??
Can someone help confirm that I have this right:
RMD’s for the year must be done before any rollovers, but RMD’s could be done after a trustee to trustee transfer (direct rollovers)??
Permalink Submitted by Alan Spross on Sun, 2011-09-18 16:57
That is correct with respect to IRAs only. Since IRA RMDs can be aggregated in any combination over all of a taxpayer’s owned IRAs (or inherited from same decedent), T to T transfers can be done without addressing the RMD. A 60 day rollover cannot since the first distribution in an RMD distribution year is deemed to include the RMD amount up to the amount of the distribution.
“Direct rollover” refers to an employer plan rollover. While these can be completed using a direct transfer process, they are always treated as a distribution and rollover. That means that the RMD amount cannot be transferred to another plan or IRA but must be withheld from the rollover and distributed to the employee.
Permalink Submitted by [email protected] on Mon, 2011-09-19 13:33
I wonder if I have a situation. A 72 year old has done a direct rollover on a portion of his 401k to an IRA (he is still working and active plan participant and rolled a portion of 401k to IRA via in-service distribution)
The whole amount of the rollover went into the IRA in 2011 and no RMD was yet made. Can we now make the RMD distribution and avoid a problem?
Also note that I’ll be changing firms and will do a trustee to trustee transfer on this account as well…
Any suggestions?
Permalink Submitted by mk foss on Mon, 2011-09-19 19:01
No RMD was due from the qualified plan. An IRA RMD is due in 2011 based on the 12/31/10 balance in the IRA – the 2011 rollover affects the 2012 RMD.
Permalink Submitted by Alan Spross on Mon, 2011-09-19 23:08
This question poses an interesting possibility.
As Mary Kay indicated, there is generally no RMD for a working 72 year old. If the employee was a 5% owner or if the plan was one of the very few that has the same RBD as an IRA, then the RMD should not be rolled over. The fact that the plan transferred the entire balance is a good indication that there was no RMD requirement for this employee in 2011, as would be expected.
But then I wondered what would happen IF the employee did the in service transfer, but then retired or separated from service before the end of 2011. That separation would turn 2011 into an RMD distribution year for this employee. Further, according to Q&A #7 of the IRS Regs for 1.402(c)2, it appears that the separation would make part of the prior transfer into an RMD and therefore an excess contribution to the IRA that would have to be corrected. It therefore appears that the transfer was changed from a full eligible rollover distribution to a partial eligible rollover distribution in which the RMD amount for 2011 became ineligible for rollover retroactively.
After the plan was aware of the separation, it would be interesting to see what communication would be released to the employee. The plan should NOT then distribute a separate RMD because the earlier distribution now included the RMD, and for amounts still sitting in the plan, the RBD would be 4/1/2012 if there were any remaining 2011 RMD dollars left in the plan.