Unrequested RMD when Processing Direct Rollover

Submitted by John Michael Hall on Mon, 2021-04-05 16:06

I just helped a 77 year old client process a direct rollover from a 401(k) plan. When the company processed the rollover, they sent an unsolicited RMD check directly to the client, and then the remainder of the rollover as a direct rollover to the new financial institution (my custodian). They also withheld 10% in taxes on the RMD check. We were not ready to take the RMD as we are considering QCD options.

Can we deposit the RMD check within 60 days like an indirect rollover so that we can evaluate the QCD? Do we need to take any additional steps to ensure that we don’t have a confusing tax issue in 2022? How is the IRS notified of an indirect rollover being re-deposited?

Thanks.



Submitted by David Mertz on Mon, 2021-04-05 16:27

Presumably the client is no longer an employee of the company.  Since the distribution from the 401(k) occurred in 2021, the company was correct to distribute this 401(k)’s 2021 RMD before doing the direct rollover to the IRA of any other amounts from the 401(k).  This RMD was required to be satisfied from the 401(k) and is not eligible for rollover.

Submitted by John Michael Hall on Mon, 2021-04-05 16:49

Thanks, DMx.  To be clear, you are saying that the RMD is also ineligible to be deposited as an indirect rollover and then taken as a QCD?

Submitted by Alan - IRA critic on Mon, 2021-04-05 17:18

Correct, RMDs are never rollover eligible. If this client has no IRA prior to this direct rollover, there is no way to reduce RMD taxable income this year by doing a QCD. THe IRA will not have an RMD until 2022, and a QCD could be used to reduce IRA RMD taxable income in 2022. 
In the above situation, the client can still do a 2021 QCD after the rollover, and the distribution will not be taxable, but this will not reduce taxes on the RMD from the 401k.

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