In Service Distribution at 70 1/2

Submitted by Mike LaRose on Tue, 2019-01-22 18:05

Hello,

I have a client that completed an “in service distribution” in December. He is rolling the funds to his IRA account and turned 70 1/2 in December. My question is since he moved money out of the retirement plan in calendar year 2018, did that trigger a RMD requirement? will he need to take 2 distributions in 2019 to satisfy the minimum(s)?
In addition, he retired on 12/27/18.

Many thanks,

Mike



Submitted by Alan - IRA critic on Tue, 2019-01-22 18:41

  • The IRA rollover does not include any RMD money if client qualifies for the “still working exception”. Client would typically qualify if he was still active at the close of business on 12/31, and is NOT a greater than 5% owner of the company (along with certain relatives). The employer is supposed to inform him if he is required to begin RMDs, but sometimes they fail to clarify the situation. 
  • If client qualifies for the still working exception, his first RMD year will be the year in which he is considered to be “retired” on the company books. His required beginning date would be the followin 4/1.
  •  If client does in service rollovers while still working, he would trigger RMDs on this money because IRA RMDs start at 70.5. In order to delay IRA RMDs, some people will roll the IRA into the employer plan to push off all RMDs until retirement. Finally, if client is still working now, does an in service rollover in 2019 and then retires later in 2019, a portion of the in service rollover will be considered his 401k RMD, will be taxable, and will be an excess IRA contribution which will have to be removed from the IRA with allocated earnings. Therefore, if he knows when he is going to retire, he might want to avoid direct rollovers in that retirement year until after retirement.

Submitted by David Mertz on Tue, 2019-01-22 20:07

I suspect that the question was edited to add the retirement date.  Since the client left service with this employer on 12/27/2018, he does not qualify for the still-working exception for any 2018 distribution and a portion of the December distribution is therefore his 2018 RMD (assuming no previous distributions occurred in 2018 that would have satisfied the 2018 RMD).  The portion that is his 2018 RMD from the plan is an amount that is ineligible for rollover to the IRA.

Submitted by Susan Tackett on Thu, 2019-07-25 17:25

I have a client who is 72 and still working.  He plans to retire in 2020.  If he does an in-service rollover of his entire 401k itno an IRA  while still working this year (2019),  does he have to segregate an amount for the RMD, or is he exempt from the RMD on these IRA assets until he retires? 

Submitted by Alan - IRA critic on Thu, 2019-07-25 21:50

If he does the IRA rollover this year and continues to work into January, there will be no RMD due for 2019 from either account. However, he will have an IRA balance from the rollover on 12/31/2019, therefore this amount will be subject to an IRA RMD for 2020. That would not work well if client decided to work beyond 2020 and could have avoided RMDs longer. He is NOT exempt from the IRA RMD starting in 2020 regardless of his work status.

Add new comment

Log in or register to post comments