401k Roth to Roth IRA

Submitted by Rose Robins on Wed, 2017-04-26 18:32

I setup up with an IRA Custodian Dec 22. Requested funds to be transferred from my existing Roth to fund the new account. The existing Roth IRA custodian issued a check Dec 30th. The 401k Roth has real estate that was not transferred until January. My question – is the real estate subject to the RMD this since I turned 70 in December?



Submitted by Alan - IRA critic on Thu, 2017-04-27 00:13

There was real estate in a Roth 401k?  That is very rare, but for a Roth 401k with any balance left in the year you will reach 70.5, there will be a Roth 401k RMD for 2017 based on the 12/31/2016 balance. Such RMD should not be included in the rest of the rollover and should be distributed to you separately. I assume you received a 1099R for 2016 for the check that was issued in December, and the rest will be on two 1099R forms for 2017. One for the direct rollover of the rest of the Roth 401k, and the other for the RMD that cannot be rolled over.

Submitted by Rose Robins on Thu, 2017-04-27 14:27

If at the end of 2016 there was only the real estate and no cash in the 401k Roth how will I handle the rmd?

Submitted by Alan - IRA critic on Thu, 2017-04-27 19:37

  • Having no liquidity when RMDs begin is a real problem. Is this a large company 401k plan or a solo Roth 401k plan? What is the real estate property in the plan and is it liquid enough to sell within the plan?
  • If the same plan includes a pre tax 401k balance along with the Roth 401k balance, the RMD can be aggregated. In other words, if the plan permits it you could satisfy your total RMD for both parts by taking the total distribution from the pre tax account and nothing from the Roth 401k balance.

Submitted by Rose Robins on Thu, 2017-04-27 20:22

This is not a large company only one person now.  the real estate is a duplex.  there is still in place a 401k.  there is no cash balance in the 401k roth account at the end of December.  

Submitted by Steve Hagedorn on Thu, 2017-04-27 21:01

Property can be appraised at the end of each year for its value providing a way of calculating RMD for each year that RMDs are due form the account. The problem I see is that with no other liquid assets left in the 401K Roth IRA, how will you pay for ongoing costs assiociated with the property (ie taxes, maintencace costs, appraissal fees, and eventiually RMDs) on this property? Rental Income (if this is rental property) should make its way into the account monthly so you will have some liquidity going forward.

  • I wonder if this property could be rolled over “in kind” from a 401K Roth into a Roth account. New custodian would need to be willing and able to accept and help manage Real Estate within this new Roth IRA. Not common, but Real Estate can be held within a Roth IRA.

 

Submitted by Rose Robins on Thu, 2017-04-27 22:43

The property was rolled over to a roth ira in January.  I was concerned about the liquid assets for the rmd that I will have to do this year.

Submitted by Alan - IRA critic on Thu, 2017-04-27 23:11

I think you are referring to a Roth 401k and Roth IRA interchangably throughout this post. In your opening post you referred to a Roth IRA custodian issuing a check, and later to that same account as a Roth 401k.  A 401k including a Roth 401k has RMDs, a Roth IRA does not.

Submitted by Rose Robins on Fri, 2017-04-28 00:57

I had a 401k roth ira.  In December I moved all the cash to my existing roth ira.  The duplex was still in the 401k roth.  I did the warranty dfeed to the roth ira.  Does this make sense now?

Submitted by Steve Hagedorn on Fri, 2017-04-28 01:51

Since you are doing something unique (owning Real Estate within a Roth), I wondered if you would share some of the challenges and some of the successes of this strategy? Does the custodian seem worhty of the task? How does the Real Estate investment compare to your other more traditional investements?

  • Thanks in advance for sharing

Submitted by Alan - IRA critic on Fri, 2017-04-28 01:57

  • An account is either a 401k or an IRA, it cannot be both. However, it appears that you are sure about a Roth 401k being the distributing account. Apparently, the cash in the Roth 401k that you could have used for the 2017 RMD was directly rolled out in December to your Roth IRA and you received a 1099R for that in January. That left a duplex in your Roth 401k and you did not transfer recorded ownership on the duplex to your Roth IRA until 2017. That results in a 2017 Roth 401k RMD calculated based on the value of the duplex on 12/31/2016.
  • The amount of that RMD as part of the value of the duplex is considered a distribution and was not eligible for rollover. Therefore, this amount is an excess contribution to your Roth IRA and must be withdrawn with allocated earnings from your Roth IRA. Since you probably have other assets in your Roth IRA that can be sold to fund the excess contribution correction, you should not have a liquidity problem. The only taxable portion of this distribution would be the small amount of earnings returned.
  • Since you still have real estate in your Roth IRA, you probably have a self directed IRA custodian because the standard custodians do not support real estate holdings in IRA accounts.

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