In-Service Distribution Over 70.5
I have a client that will still be working for the company (he is 72), but would like to take a full in-service distribution of his 401k as he is going to start to need money from this IRA to supplement his declining income. When does he have to then take his RMD on this block of money? Let’s assume he rolls it out in tax year 2017.
I am unsure as I read somewhere that if you retire after 70.5 and rollout of the plan you must take the RMD at the time of the rollover or leave enough money in the plan to satisfy the RMD on the portion otherwise it is an excess contribute to the IRA. Thanks for your help.
Permalink Submitted by Alan - IRA critic on Wed, 2017-04-12 17:16
Yes, your last paragraph is correct. If the client retires this year, then 2017 becomes his RMD distribution year and any distribution or rollover taken anytime in 2017 is deemed to apply to the RMD amount for 2017. This can happen retroactively if he does a rollover early in the year and then retires before year end. If he just takes a distribution instead of a rollover, that distribution would count toward the RMD if he retires this year. Therefore, if he takes a distribution from the 401k of at least the amount that would be his RMD and then does a rollover afterward he would not have an excess IRA contribution because the RMD (if any) was satisfied by the earlier distribution. He should take the distribution he needs for expenses from the 401k instead of from the IRA after the rollover to avoid a reporting hassle caused by the rollover being his first distribution of the year and creating an excess IRA contribution if he retires. If he does not retire, there is no problem but he will face this issue once the year arrives in which he will retire. Apparently, he is not a 5% owner or RMDs would have started at 70.5.
Permalink Submitted by Ryan Smith on Thu, 2017-04-13 13:13
Perfect thanks, yes he is not an owner.