401(k) RMD (year of retirement)
401(k) participant > 70.5 (less than a 5% owner) is officially retiring from his current employer in July 2015.
Early this year (2015) he rolled his 401(k) to an IRA – Recordkeeper did not withhold an RMD.
Recordkeeper is telling the client an RMD was not required because the rollover was processed prior to his official retirement date (i.e. July 2015)
I don’t think the recordkeeper is correct. Instead the 401(k) RMD rules for a < 5% owner - state the later of 70.5 or year of retirement.
Shouldn’t a 2015 RMD have been taken from the 401(k)account (based on 12/31/2-14 account value) prior to the rollover?
Guidance is appreciated
Thank you!
Permalink Submitted by Alan - IRA critic on Tue, 2015-06-09 16:00
Yes, the RMD should have been distributed and not included in the rollover. However, the 401k RMD has been satisfied as part of the rollover distribution, but the IRA now holds an excess contribution because the RMD amount was not eligible for rollover. A corrective distribution from the IRA (treating the RMD amount as an excess regular IRA contribution) must be requested from the IRA custodian. The earnings on the excess will be taxable. The RMD must be reported as taxable on line 16b of Form 1040, and an explanatory statement included with the tax return since the 1040 will not conform to the 1099R from the 401k.