401k RMD > 5% owner
401k participant (> 5% owner), turns 70.5 in 2017
He wants to do the following
take an in service distribution – and immediately rollover (convert) the funds to a Roth IRA followed by
taking a loan
Question(s)
Participant is aware he must take an RMD since he does not qualify for the “still working” exception. Its my understanding he is permitted to take the two above referenced distributions but – (here is the question)
Doesn’t he need to take the RMD first (before the loan or in service? due to the first funds out of a plan are considered RMDs. Or…can he take the loan and in-service now w/o any RMD impact since his RBD 4/1/2018? Instead he will take 2 RMDs in 2018?
All guidance is appreicated
Thank you
Permalink Submitted by Alan - IRA critic on Tue, 2017-08-01 21:31
The loan is not a taxable distribution, and therefore does not affect the RMD so the loan could be taken before the RMD. However, a conversion is a rollover as you indicated and RMDs cannot be rolled over. Therefore, the full RMD must be completed before converting any additional amounts. Further, the loan will not reduce the plan balance for purposes of calculating future RMDs. If the loan is not repaid, any deemed distribution will be reported on a 1099R, but that amount will not apply against the RMD for that year. Finally, if he retires with an unpaid loan balance, an offset distribution will be reported that DOES apply against the RMD for that year.