401k rollover

Submitted by Robert Zenn on Tue, 2019-01-29 14:15

If someone 81 is still working, contributing to a 401k and not taking any RMDs, then they do a partial rollover to their own IRA for another investment, when do they have to take an RMD on the IRA rollover? Dec 31 of that year or April 1 of next year?



Submitted by Alan - IRA critic on Tue, 2019-01-29 17:48

The partial rollover to an IRA will result in a higher IRA RMD in the year following the rollover. That RMD becomes due on 12/31 of the year following the rollover.Therefore, doing this rollover will result in loss of RMD deferral on the balance moved out of the 401k plan. There is no 401k RMD until the year in which the person retires. Note that if a partial rollover to an IRA is done this year and the person retires before 1/1/2020, then the partial rollover is deemed to apply toward the 2019 401k RMD, and because it was rolled over will become an excess IRA contribution (to the extent of the RMD amount) that will have to be withdrawn from the IRA. Therefore, if there is a decent chance of retirement in 2019, the partial IRA rollover should not be done and the person should wait until retirement and then take the 401k RMD followed by a full rollover.

Submitted by Robert Zenn on Wed, 2019-01-30 13:48

So, if he remains retired until 2020, the IRA rollover amount in 2019 will not result in an RMD withdrawal until 12/31/20?  Not 4/1/20??

Submitted by Alan - IRA critic on Wed, 2019-01-30 16:31

  • I think you meant “if he continues working until 2020” – the 2019 rollover will not be a plan RMD. The rollover money will increase the IRA value on 12/31/2019 and therefore the 2020 IRA RMD. The required beginning date for an IRA is always 4/1 of the year following the year 70.5 is attained, therefore 4/1/2020 has no meaning with respect to the IRA. The retirement date does not affect IRA RMDs, only RMDs from the plan sponsored by the employer. In this case the IRA RMD will increase in 2020 (amount due 12/31/2020). The 401k RMD does not start until the year of retirement, and that RMD is due 4/1 of the year following retirement.
  • In some year the person will retire. The year of retirement will become the first RMD distribution year for the 401k plan. Any IRA rollovers done in prior years will reduce the balance in the 401k plan, so the 401k RMD for the retirement year will be less. For years in between 2020 and the retirement year the total RMD will be higher because the IRA balance has been increased.

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