Still Working Exception W/Rollover Dollars
If a participant in a 401k plan is over 70 1/2 and is still working for that company and owns less than 5%, can he rollover old IRA assets into the 401k plan to avoid the RMDs on those IRA assets? (Assuming the employer will him to roll those IRA dollars into the 401k plan). I think it is permissible, but I can’t find anything concrete on the IRS website.
Thank you!
Permalink Submitted by Alan Spross on Fri, 2012-08-03 16:54
Yes, that can be done, and it will eliminate IRA RMDs for years participant continues to work by eliminating the IRA balance except any basis in the IRA which cannot be rolled into the 401k.
The IRA RMD for the year the rollover is done must be taken before rolling the IRA into the 401k. It’s the same rule that applies when a 401k in an RMD distribution year is rolled over to an IRA. If the IRA owner has basis in the IRA that comes out pro rate, but then rolls the pre tax IRA money into the 401k, then the taxation of the IRA RMD for that year will be reduced or eliminated.
A similar strategy can be used for IRA money if the IRA owner is working and has a qualified plan that will accept IRA rollovers and the participant plans to separate from service at age 55 or later. Participant would then have access to the former IRA money directly from the 401k after separation without penalty at 55 rather than having to wait until 59.5.