Does Reverse Rollover of IRA to 401(k) eliminate the RMD?
I see several articles alluding to the elimination of the RMD in a reverse rollover of an entire IRA balance to an employee’s 401(k) if the employee continues to work past age 70 1/2. Does anyone know of a citation or Rev. Rul. for support?
Permalink Submitted by Alan - IRA critic on Mon, 2014-07-14 23:43
The answer is found in the IRS Regs here: http://www.law.cornell.edu/cfr/text/26/1.401%28a%29%289%29-2. Note that IRS Regs do not state what is NOT required, but what is required. The RBD stated is the same for the entire 401k balance, and there is no exception for the balance that resulted from a rollover into the plan. Therefore, this strategy is valid if a taxpayer wants to do such a rollover to defer IRA RMDs until after separation from service from the plan sponsor. There are a few plans that require RMDs for all employees to begin a 70.5 and this is addressed in the posted Regs as well. Such RMDs are PLAN RMDs, not statutory RMD unless of course the employee is a 5% owner. A plan RMD is eligible for rollover, so if a plan requires RMDs at 70.5 and employee is NOT a 5% owner, the distribution can be rolled over to an IRA where it will also be subject to RMDs, but only at the rate determined by the RMD divisor.