RMD Via Mandatory Withholding

Submitted by Jonathan Sard on Tue, 2013-05-14 19:38

A client is 72 years old and did an IRA rollover of $100,000 from his 401k to his IRA. The check was payable to the participant, so as a result, 20% was withheld for federal income tax. Can a portion of $20,000 that was withheld count toward the clients RMD, since he didn’t actually take out an RMD yet? (As I understand the rule, the RMD should have been taken out prior to him executing the rollover, but he failed to follow the rules. Perhaps he lucked into solving the problem via the 20% wihholding)

Thank you!



Submitted by Alan - IRA critic on Tue, 2013-05-14 20:01

  • Yes, he DID luck out! Assuming the 100k was the full value of the 401k, his RMD might be around 4k. Within 60 days of the distribution he could come up with other funds of 16k to complete the allowable rollover amount. His taxable income would then be limited to the 4k RMD, although unless he has other tax payments that can be reduced for 2013, he will not get credit for the 20k until he files his return.
  • NOTE: If client is still working and not a 5% owner, he does not have an RMD. Or if he is retired and 100k is only a portion of his 401k, his RMD could be more than the withholding on the 100k rollover.

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