distributions
Here are the facts: date of birth 05/18/1950. turning 72 this year (2022). all retirement assets are in a 401(k) plan, of which I am the administrator and trustee. I am still currently working and am 100% owner of the business. I very much want to use my RMD’s as QCD’s. However, I did not move my 401(k) into an IRA last year. I plan on doing it shortly, before the end of the year.
Here’s my question: if I’m correct that the the required beginning date (RBD) is April 1 of the year following the year the individual reaches age 72, which would be next year 2023, why can’t I transfer my 401(k) into an IRA this year (2022) without it causing me to take a distribution from the 401(k) before the transfer, since I have not yet reached my RBD?
Permalink Submitted by Alan - IRA critic on Mon, 2022-03-21 20:07
You cannot do that. The reason is a rollover to an IRA in any RMD distribution year (2022) is treated as applying to the RMD because a direct rollover is reported and treated as a distribution. While it is true that you are not required to take any distribution from the 401k until 4/1/2023, if you do it will be treated as the RMD for 2022 because 2022 is a 401k RMD distribution year even though you can defer it to 2023.
It sounds like you do not currently have an IRA, and if so you cannot create an IRA RMD for 2022 since there is no IRA balance on 12/31/2021.
For your plan to work, you would have needed to do a full or partial 401k rollover to your IRA prior to 12/31/2021. There would be no 401k RMD that year, but you would then have had an IRA balance on 12/31/2021 which would generate an IRA RMD for 2022 and you could apply a QCD to that.
For others reading this, note that a >5% owner of the firm sponsoring a 401k must start RMDs at 72 (RBD 4/1 of the following year. The “still working” RMD exception does not apply.
If you take your 401k RMD this year, you can roll over the rest of the plan to an IRA as long as your plan document allows it. That will give you an IRA balance on 12/31/2022 and set up a 2023 IRA RMD and QCD. But you would have to income offset to your 2022 401k RMD.
Permalink Submitted by Dan Zaehring on Mon, 2022-03-21 20:46
Maybe I am misinterpreting your reasoning but you seem to be implying that if there is no RMD required you can’t make a QCD. Since QCDs are still allowed anytime after 70 and a half, before RMDs start, that doesn’t seem correct. Or are you saying that QCDs can only be made from a balance on hand at the end of the previous year. To ask his question another way, why can’t he make a QCD with funds previously transfered into the IRA in the current year?
Permalink Submitted by Alan - IRA critic on Mon, 2022-03-21 21:32
He could, but OP stated he wanted to “use my RMDs as QCDs”, but that isn’t possible if there was no IRA balance at the end of 2021. Yes, he could take the 401k taxable RMD, roll over an additional amount to an IRA this year, do a QCD from the IRA that would not be taxable, but would not offset the taxes from the 401k RMD. Such a QCD would marginally reduce future taxable RMDs by reducing the IRA balance, but it would not offset current RMD taxable income, the stated goal.
Permalink Submitted by Dan Zaehring on Mon, 2022-03-21 22:42
Okay. Thanks for the clarification.