RMD requirements for 401k participants over 70.5

Submitted by Brian Solomon on Fri, 2016-08-26 18:20

Here’s the scenario: A 73 year old participant retires in Sept of this year, does he need to account for RMD this year since he did not complete a full year of work? Can he rollover his 401k to an IRA without an RMD for this year. Should he leave the balance in the 401k until 2017 to avoid an RMD this year?



Submitted by Alan - IRA critic on Fri, 2016-08-26 19:33

  • He has choices in this situation. His required beginning date for 401k RMDs is not until 4/1/2017. However, if he wants to do a direct rollover to an IRA this year, the plan will have to distribute his 2016 plan RMD to him and not include it in the direct rollover.
  • But having worked most of the year, he may save taxes by waiting until 2017 to do the rollover so he does not have to take a plan RMD this year. If he then did the direct rollover in January, the plan would have to distribute both his 2016 and 2017 RMDs before the direct rollover is done. But two years of RMDs taxable in 2017 but without taxable earnings may even up his taxable income between 2016 and 2017,  and might also affect the amount of SS income included in his AGI for both years. To determine the best approach he would have to crunch some numbers to see how things work out with and without the plan RMD in 2016.

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