RMD when 401k contains both Traditional and Designated Roth account

Submitted by Sarah Murphy on Fri, 2019-09-06 19:03

Hello,

I’m trying to confirm if a 401(k) participant can choose which balance to take an RMD from when the 401(k) contains both Traditional money and a designated Roth account. In searching, I have come across two threads on this site, but both are from 2016 and I cannot find anything more recent.

https://irahelp.com/forum-post/27823-01k-and-rmd
https://irahelp.com/forum-post/26575-roth-401k-distributed-rmd-roth-conversion

Does anyone have anything more current?

Thank you in advance!
Mark



Submitted by Alan - IRA critic on Sat, 2019-09-07 00:14

  • Still no IRS or any other guidance since the 2016 discussions. No one has attempted to relate IRS Reg 1.401(a)(9)-8 A 2 to the aggregation of RMDs question within a single plan with a Roth sub account. However, just this week the conservative TSP plan has officially released to the federak Register their expanded TSP distribution options effective on 9/15/2019.  RMDs other than automatic TSP issued RMDs will be allowed to be completed using either the pre tax or the Roth sub accounts, or a pro rata between the two. Therefore, it appears that as long as the plan administrator authorized aggregation of the RMD, there is little risk to the participant in aggregating to their advantage. 
  • Note that TSP still does not offer all aggregation options. The participant must either pro rate or use either of the accounts exclusively. Splits other than pro rating are not allowed. Other plans may offer their own interpretation of these rules.
  • It is always simpler and more beneficial to have the Roth account rolled to a Roth IRA before the age 70.5 year to avoid all RMDs of Roth balances. However, if the participant is still working and still making Roth 401k deferrals, that will complicate the situation.
  • At the end of the day, if the Roth 401k is not qualified when RMDs begin, taxes will be paid on some amounts that would otherwise be tax free if the Roth was either qualified or rolled out prior to RMD distribution years. 
  • Having reviewed several articles on the subject of RMD aggregation rules that all steer clear of this question, I can’t believe that none of them have thought of about this. Some are just avoiding the issue altogether because they have no authoritative reference, and no help from the IRS.

Submitted by Sarah Murphy on Sat, 2019-09-07 23:11

Alan, Thank you for the response. It was the release of the TSP rules that prompted to look into this. I had not heard of being able to take an RMD based on the Roth account balance from the pre-tax account until now. Hard to believe the IRS hasn’t provided any clarificatio/guidance on this. Thanks again.Mark 

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