Satisfying IRA RMD from 401(k) rollover
I have a question about required minimum distributions.
A taxpayer, Joe, age 73, is still working for ABC company. Joe has $500,000 in his company 401(k). Joe also has two IRAs. One IRA has a 12-31-2018 balance of $200,000, and the other has a 12-31-2018 balance of $6,000.
In 2019, Joe’s aggregate IRA RMD is $8,340.08 ($200,000/24.7 + $6,000/24.7).
For various reasons, Joe does not want to pull any money from the larger IRA (surrender charges, growing income guarantees, etc.). However, even if he cashes out the smaller IRA completely, he won’t have enough to cover the 2019 RMD.
Here’s my question:
Is there anything in the Code or Regulations that would prevent Joe from doing a rollover from his 401(k) plan into a new, third IRA during 2019, and then drawing funds from that IRA to satisfy the remaining RMD?
I am not aware of anything that states that IRA RMDs must be drawn from an IRA that has a balance on 12-31 of the prior year.
Obviously, there is a possibility of the IRS objecting on a “step transaction” basis. But I am trying to find out if there is any Code or Regulation citation that would address this.
Permalink Submitted by Alan - IRA critic on Thu, 2019-07-25 15:12
There is no problem doing this under the IRA RMD aggregation rules. Most 401k plans will allow partial in service distributions at that age. But Joe also needs to be aware that the year in which he retires becomes an RMD distribution year for the 401k. In that particular year in order to avoid an excess IRA contribution from rolling over the 401k RMD, he must first complete the entire 401k RMD before doing any IRA rollover.