Code/reg source – RMDs must come out before rollover
Client, age 72, still works for employer. Has 403b. Thinking about retiring in 2022.
If they do so, first RMD is due April 1, 2023.
Client must take RMD first before rolling any money into an IRA. Otherwise, the rolled-over RMD is an ineligible rollover amount and an excess IRA contribution.
This is one of those things that you know is accurate, but you can’t remember where the “chapter and verse” is on it. Is it in 401(a)(9)? One one of the Reg Q&A’s? I don’t want to go dumpster-diving trying to find the providence for this.
Please and thank you.
Permalink Submitted by David Mertz on Thu, 2022-02-17 23:04
CFR 1.402(c)-2: First money out in an RMD year is RMD.
§ 402(c)(4)(B): RMD is not eligible for rollover.
§ 408A(d)(3)(C): Conversions are rollovers.
Summarizing these, CFR 1.408A-4 Q&A-6 explains that no part of a distribution in an RMD year can be converted to Roth until the RMD has been satisfied.
Although CFR 1.408A-4(d) discusses failed conversions in the context of those making impermissible Roth conversions before 2010 due to exceeding the $100,000 MAGI limit, it seems clear that any amount such as an RMD impermissibly moved from a traditional IRA (or a traditional account in a qualified retirement plan) to a Roth IRA would be a failed conversion and would not be a conversion. Since the deposit into the Roth IRA cannot be considered to be a conversion, it can only be treated as an ordinary Roth IRA contribution. Ordinary Roth IRA contributions are excess contributions if they exceed the amount of ordinary contribution that the individual is eligible to make. The IRS has clearly explained this in many Private Letter Rulings regarding amounts impermissibly deposited into an IRA.