first RMD from 401(k) rolled over
Client date of birth 6/2/42, retiring in June, turns 70-1/2 in December 2012.
Client has a 401(k) and an IRA. First RMDs for both must be by April 1, 2013 based on 12/31/11 account values.
After he retires, if client rolls 401(k) into existing IRA before 12/31/12, can he take both first RMDs from the IRA, or must he take 401(k) RMD out of 401(k) before he rolls it?
Thank you,
Art
Permalink Submitted by Alan Spross on Wed, 2012-04-25 20:27
Whenever an employer plan is rolled over in an RMD distribution year, the plan is required to withhold that year’s RMD from the rollover and distribute it directly to the employee .
In your example, the employee could still delay his 2012 IRA RMD until 4/1/2013 based on 12/11 IRA account value.
The 2013 IRA RMD will be based on the larger IRA balance on 12/31/2012 due to the 401k rollover funds.
If the 401k was left in place until early 2013 and the rollover done then, the plan would have to withhold both the 2012 and 2013 plan RMDs from the IRA rollover.
Sometimes a plan will overlook the RMD and the entire balance gets rolled over. If that were to occur, the plan RMD is still deemed to have been made, but an excess contribution in the amount of the RMD will have been made to the IRA and would have to be corrected using the usual excess contribution corrective procedures.
Permalink Submitted by Arthur Dicker on Wed, 2012-04-25 20:47
Thank you for the prompt response, Alan.
However, it is still not clear to me whether the 401(k) plan administrator is required to withhold the RMD in 2012 if the account rolls out in 2102 since it is not due until 4/1/13.
I think you are saying it is not.
Permalink Submitted by Alan Spross on Wed, 2012-04-25 21:28
No, the plan must withhold the RMD if the rollover is done in an RMD distribution year.
2012 IS an RMD distribution year even though the RMD could have been deferred to 4/1/2013 if no distribution was taken. A rollover is a two part transaction, first a distribution and then a rollover. Since the first distribution in an RMD distribution year is deemed to apply to the RMD and is not eligible for rollover, the plan should pay out the RMD separately and only roll over the rest of the balance.
This is the same reason that a Roth conversion cannot be done in an RMD year until the RMD has been first distributed.