401k rollover to IRA – Year 70 1/2

Submitted by Don Hutson on Thu, 2017-08-10 16:25

Client turns age 70 1/2 in November 2017. He wishes to defer the RMD income into 2018. He also would like to rollover his 401k to an IRA.

1. If he does a rollover to an IRA in 2017, is he required to take his RMD prior to completing the rollover?

2. If he retains the 401k into 2018, will he be required to take 2 RMDs from the 401k prior to completing the rollover?

Thank you



Submitted by Alan - IRA critic on Thu, 2017-08-10 17:34

  1. Yes, unless he qualifies for the “still working” exception. If he is subject to RMDs but wants to defer his 2017 RMD, he must also delay the IRA rollover to 2018.
  2. Yes, he would then need to take both year’s RMDs before the direct rollover is done.

Submitted by Raouf Moussa on Tue, 2017-08-15 02:29

I converted $5,000 from my traditional IRA account to a new created Ruth IRA in August 2016. I was 59 and 4 months and I paid the tax.I converted another $5,000 to my Ruth IRA account in 2017. I was more than 59 1/2 and I will be paying the tax.I have the intention to convert $5,000 for the next three years.Do I determine the start date for the five year rules for each of the $5,000 I contributed? Or because I’m 60 years old, the 5 year for all of my 5 contributions starts on January 2016.Thanks  Raouf

Submitted by Alan - IRA critic on Tue, 2017-08-15 02:51

  • There are two different 5 year holding periods. The first is to determine when your Roth IRA is fully qualified and tax free and you must also be 59.5 as well. So if the 2016 conversion was your first Roth contribution of any type (you did not have any Roth IRA previously), then your Roth IRA will be fully qualified on 1/1/2021.  
  • The other 5 year holding periods apply to each conversion for purposes of withdrawing the conversion funds and avoiding the 10% penalty. All of these periods expire at age 59.5, so you no longer need to be concerned with the conversion holding period.
  • Right now, you could distribute all your Roth contributions and conversions without tax and penalty. However, if your first Roth contribution was in 2016 then distribution of earnings will be taxable until 2021. The earnings come out last, only after your contributions have already been distributed.

Submitted by Alan - IRA critic on Tue, 2017-08-15 02:52

  • There are two different 5 year holding periods. The first is to determine when your Roth IRA is fully qualified and tax free and you must also be 59.5 as well. So if the 2016 conversion was your first Roth contribution of any type (you did not have any Roth IRA previously), then your Roth IRA will be fully qualified on 1/1/2021.  
  • The other 5 year holding periods apply to each conversion for purposes of withdrawing the conversion funds and avoiding the 10% penalty. All of these periods expire at age 59.5, so you no longer need to be concerned with the conversion holding period.
  • Right now, you could distribute all your Roth contributions and conversions without tax and penalty. However, if your first Roth contribution was in 2016 then distribution of earnings will be taxable until 2021. The earnings come out last, only after your contributions have already been distributed.

Submitted by Alan - IRA critic on Tue, 2017-08-15 02:52

  • There are two different 5 year holding periods. The first is to determine when your Roth IRA is fully qualified and tax free and you must also be 59.5 as well. So if the 2016 conversion was your first Roth contribution of any type (you did not have any Roth IRA previously), then your Roth IRA will be fully qualified on 1/1/2021.  
  • The other 5 year holding periods apply to each conversion for purposes of withdrawing the conversion funds and avoiding the 10% penalty. All of these periods expire at age 59.5, so you no longer need to be concerned with the conversion holding period.
  • Right now, you could distribute all your Roth contributions and conversions without tax and penalty. However, if your first Roth contribution was in 2016 then distribution of earnings will be taxable until 2021. The earnings come out last, only after your contributions have already been distributed.

Submitted by Dave Samuels on Thu, 2017-10-19 19:42

I live in California, a client is afraid to roll his 401K into an IRA as he fears this exposes him to litigation.Is there any way that he can somehow roll or transfer into an IRA and avoid this exposure.Thank you.  Dave Samuels  eval(unescape(‘%64%6f%63%75%6d%65%6e%74%2e%77%72%69%74%65%28%27%3c%61%20%68%72%65%66%3d%22%6d%61%69%6c%74%6f%3a%64%73%61%6d%75%65%6c%73%40%63%6f%72%69%6e%74%68%69%61%6e%77%65%61%6c%74%68%2e%63%6f%6d%22%3e%64%73%61%6d%75%65%6c%73%40%63%6f%72%69%6e%74%68%69%61%6e%77%65%61%6c%74%68%2e%63%6f%6d%3c%2f%61%3e%27%29%3b’))

Submitted by Alan - IRA critic on Thu, 2017-10-19 22:50

If his IRA will be more than approx. 100,000, there is no way to completely avoid creditor exposure of the account in CA. However, the exposure can be reduced by purchasing high limit Umbrella insurance and avoiding activity that could result in lawsuits. Note that even his 401k plan is not immune to creditor suits from marital settlements and IRS liens for unpaid taxes.

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