IRA to 401k?

Submitted by Mike Caldwell on Mon, 2022-11-21 13:55

I am 74 years of age and been taking RMDs for 2 years. However, I am still working, have really good group insurance and don’t need the RMD income to live on. My plan is to retire in 2-3 years and go on Medicare. By taking the RMDs it throws me into a higher tax bracket and could possibly increase my Medicare premiums when I retire and go on Medicare. I have a really good 401k with excellent low cost investment options and they will accept my IRA should I choose to convert it. This would save me over $100,000 in RMDs over the next 2-3 years plus allows the 401k to hopefully grow tax deferred until I do retire and move it back to my IRA when I will need the RMD income. Thoughts?



Submitted by Alan - IRA critic on Mon, 2022-11-21 14:53

Your main goal is to level out your taxable income for the duration, therefore the larger your wages are in relation to your RMDs, the better your plan will be. Conversely, doing this will defer your IRA as well as your 401k RMDs (due to the still working exception) into fewer years and make them larger. Doing this IRA to 401k rollover will not reduce your IRA RMD for 2022, as you will have to distribute it before doing the rollover. And if will not reduce your total RMD for 2023 either if you are not still employed on 1/1/2024, and it will not reduce your RMD for the year in which you actually retire. You would have to work into 2025 in order to achieve over one year of IRA tax deferral. Finally, if you have any basis in your IRA (Form 8606), you cannot roll over any of the basis to the 401k.

Submitted by Mike Caldwell on Mon, 2022-11-21 15:04

Thanks for your response. I have already taken my full RMD for 2022 and my plan is to still be employed through January of 2025. At that time I would start taking RMDs again. That would save me from taking RMDs in 2023 and 2024.

Submitted by Alan - IRA critic on Mon, 2022-11-21 15:07

Correct.

Submitted by Mike Caldwell on Sun, 2022-11-27 18:09

As a follow up to my previous post of moving my Traditional IRA to my 401k while I am still working to avoid taking RMDs: Once the transfer has taken place will I be able to convert some of my Traditional 401k to the Roth 401k?  I understand there will be taxes due on the conversion but is that paid at tax time just like it would be on a Roth conversion outside of your 401k?

Submitted by Alan - IRA critic on Sun, 2022-11-27 18:49

If your plan offers in plan Roth rollovers (IRRs), you should be able to use the rolled in dollars for this rollover. Neither mandatory 20% withholding or voluntary withholding is allowed for this rollover, so you will have to make up the additional taxes due using withholding from other income sources, or by paying quarterly estimates. Since it is so late in the year, you might face and underpayment penalty for a large rollover this year, and filing the annual income installment form would reduce that penalty as it would document that your rollover was done in the final quarter.

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