Can I Roll Bene 401k to own IRA after RMD starts?
What we know:
• Husband died 12 yrs ago at age 58 with a 401k, would have turned 70.5 this year. Spouse was sole bene.
• Account is currently (and had been for past 12 yrs) a beneficiary 401k with the spouse as designated beneficiary. No distributions to date. She is 71.
• RMDs are supposed start this year (the year the decedent would have turned 70.5) using the Single Life Tables, spouses age, resulting in a higher RMD
• The current 401k custodian is requiring her to take the RMD this year before rolling it out.
What we would like to do:
• Roll the beneficiary 401k into her own non-beneficiary IRA and start taking RMDs next year using the more favorable Uniform Tables.
Can we do this?
Permalink Submitted by Alan Spross on Wed, 2012-09-12 22:03
Yes, no problem there.
Before rolling over the entire plan, check to see if any highly appreciated employer shares present any potential for NUA. She still can still take a qualified LSD for NUA purposes if the distribution is in 2012.
Also, if there are any after tax contributions in the plan that are rolled to her IRA, she should file Form 8606 to report the basis on her 2013 return.
Permalink Submitted by mark schaffer on Fri, 2012-09-14 14:42
Thanks Alan.
No NUA, but $30k after tax exist. Custodian said RMD this yr is $45k, which they will send her including the entire $30 after tax, so RMD satisfied and only $15k taxable. Does this sound correct? 401k does not have aggregation pro-rata rules? We would then roll to her own IRA with expected RMD of only $25k next year.
Permalink Submitted by Alan Spross on Fri, 2012-09-14 18:16
The only way the plan could distribute the entire after tax amount without pro rating would require those amounts to be pre 1987 after tax contributions. Post 1986 after tax contributions must be pro rated with pre tax amounts. Since the entire after tax amount is apparently being distributed, that indicates that none of those contributions were post 1986.
Prior plan statements should indicate the separate balance of any pre 1987 after tax contributions. Perhaps she has a statement that can be checked.
Permalink Submitted by mark schaffer on Fri, 2012-09-14 19:07
yes, statement shows pre 87
Thanks for your help!