RMD 401k age 71 Rollover

Submitted by Ryan Smith on Thu, 2020-03-05 20:22

We have a 71 year old client that just retired. He has a $200k 401k and an 800k IRA. He has been taking his RMD already from the IRA. Since he left his employer over the age of 70.5 it was out understanding that we needed to take the RMD out before his money was rolled out of the 401k into his IRA. The service center at Empower agreed and was going to execute that. Unfortunately they made a mistake and rolled the entire account balance into the IRA. Should we immediately take the $7500 RMD out of the IRA or do we need to see if Empower can take the money back and undo the transaction? Thanks for your help.



Submitted by Alan - IRA critic on Thu, 2020-03-05 22:03

  • They won’t back the funds back, but if they will partition the 1099R forms into coded 7 for the RMD amount and the other coded G for the rest of the rollover, it would make things simpler for tax filing, since the 1099R forms would then reflect what the client must report. That is the 401k RMD has been satisfied, and only the allowed rollover is reported as a rollover. Worth a try, but they probably will not do it.
  • Yes, the 7500 RMD is an excess IRA contribution and must be removed from the IRA with applicable earnings (or more likely now less the applicable loss). Client will then have the RMD amount in hand as it should have been in the first place. 
  • So this is not costly, but is a hassle to report correctly when it does not conform to the 1099R. There will also be another 1099R from the IRA reporting the return of the excess contribution from rolling over the RMD.

 

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