RMD in year of retirement
Client is 73 years old and retired in March 31 2020. Has been contributing to 457 up thru end of employment. Has not had to take previous RMD’s because she was still employed. It’s our understanding that that since she retired in 2021, she must take an RMD in 2021 from the Dec 31, 2020 balance of her 457. She had the understanding her 1st RMD would be due in 2022 because she was employed and contributing in 2021. Can someone clarify?
Also, does the first RMD have to come directly from the 457 before it is rolled to an IRA??
Permalink Submitted by Alan - IRA critic on Thu, 2021-05-06 20:28
Yes, in an RMD distribution year such as 2021 in this case, the 457 RMD must be distributed before doing a direct rollover of the balance to an IRA.
Her 2021 retirement at age 72 or later makes 2021 an RMD distribution year, but without the IRA rollover her first 457 RMD is not actually due until 4/1/2022, which is the required beginning date (RBD). But delaying the 2021 RMD to 2022 would result in two RMDs being due and taxable in 2022, generally not a beneficial strategy. But the IRA rollover removes that possibility unless the IRA rollover itself is postponed until 2022.
If client has now retired her income will be much lower in 2021. Postponing the IRA rollover in order to postpone the 2021 RMD as well might work if she worked most of the year in 2021, but having retired early in 2021, it is more likely better for her to take the 2021 RMD this year than have to double up in 2022. Accordingly, there is probably no benefit to delaying the IRA rollover just to postpone the 457 2021 RMD until 2022, and then having 2 RMDs in 2022.