RMD
Hi,
We laid off a 74 year old employee in January 2021. He is now working at a new company and wants to rollover his 401(k) funds to his new employer sponsored plan (which is acceptable). Will he be required to take his 2021 RMD from us (former employer) prior to rolling over the funds? Or by rolling over, he will eliminate the need for the RMD?
Permalink Submitted by Alan - IRA critic on Thu, 2021-12-23 16:44
Due to his retirement from your company as of RMD age in 2021, there is a 2021 RMD due which must be distributed to him before rolling over the remaining balance. Since his RBD is 4/1/2022, there is no requirement to distribute the 2021 RMD this year unless he wants it to avoid two taxable distributions next year. In other words, if the 2021 RMD and the direct rollover to the new plan is not completed by year end (and it may be too late now), then both the 2021 and 2022 RMDs will have to be distributed before doing the direct rollover next year.
If he worked at your company long enough, he may have highly appreciated employer shares eligible for NUA. If those shares are sold in the plan or rolled over, NUA is forfeited.
Other than the RMDs already due, doing this rollover may eliminate future RMDs on this balance if he will stay employed at the new employer at least into 2023, because if he leaves that company in 2022, he will have an RMD due for 2022 and there will be no net RMD reduction accomplished.