RMD Question
Hello, I have a client who turned 70 1/2 September of this year and he rolled his 401k to an IRA. Should the RMD amount be taken out before he rolled the 401K over or since he turned 70 1/2 this year could he delay the RMD un 04/01/2019 and then take the 2018 RMD and 2019 RMD next year?
Thank you.
Permalink Submitted by Alan - IRA critic on Wed, 2018-11-14 20:44
Assuming that client will have retired prior to 12/31/2018 or is a 5% owner, 2018 is his first RMD distribution year. In an RMD distribution year, a rollover is treated as a distribution. Therefore, if client had not completed the RMD from the 401k prior to the rollover, some of that rollover is considered to be the RMD. That RMD amount should be reported as taxable income on his return. And since an RMD cannot be rolled over, the RMD rolled into the IRA is treated as an excess regular IRA contribution that must be removed with allocated earnings. Note that this error is not costly, but IS a hassle to correct and report properly on client’s tax return. Back to your question, because of that IRA rollover, deferring the RMD to 2019 is not possible. He could only have deferred the RMD if he also deferred the IRA rollover to 2019, and then would have had to distribute both the 2018 and 2019 401k RMD before rolling over the rest of the balance. The plan should have known better than to include the RMD in the rollover, unless he was still working when he did the rollover and the plan did not know he was going to retire before year end.