Applying non-Roth after-tax balance in 401k to RMD

Submitted by Sherry Wilson on Wed, 2025-03-05 17:42

Hello,

We had an extensive “conversation” in November 2024 regarding using NUA for my first (2024) and second (2025) year RMDs. I’m happy to say that the recommended strategy was executed in February, but not without a glitch. Unfortunately, the plan administrator transferred less than the NUA shares requested, resulting in my 2-year RMD being short around $1600. The plan administrator offered to re-do the entire transaction, but I think we worked out a better solution that wouldn’t require clawing back the entire distribution and starting over. I had contributed around $1700 in non-Roth after-tax money which I had requested be rolled over to my Roth IRA. This amount was mailed to me in a check made out to the investment firm. The solution worked out was to stop payment on the $1700 check and then issue one made out to me in that same amount. This $1700 would then satisfy the total RMD amount needed. My question is can I now take this check and have it rolled over to my Roth IRA? Also, can I make my usual 2025 Roth contribution, in addition to the $1700 rollover (if allowed)? I am receiving severance through the end of June, but I believe this is considered wages for Roth IRA contribution purposes. Any other comments regarding this situation are appreciated.

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Permalink Submitted by Alan - IRA critic on Wed, 2025-03-05 17:58

Good decision not to pursue a do over of the prior distribution, because plan administrators are prone to mess up do overs for which they have little experience. Probably even more likely if NUA shares are involved.

However, the next 1700 distributed will complete your RMD, but because that amount is an RMD it cannot be rolled over.

With earned income per severance, you can make a Roth IRA contribution as long as you are under the MAGI limit, and the RMD distributed from the plan is included in your MAGI.