IRA rollover near end of year (2024 ) for a client turning 73 next year ( 2025)
A client is currently retired and has a 401k from the employer she wants to rollover to an IRA. Is there any problem with initiating the rollover now given the balance on Dec 31 should be used to calculate the RMD?
I am thinking the rollover could be pending on 12/31 if things move slowly. Is there any issue with subsequently taking the RMD from the IRA if say the funds don’t materialize in the IRA until 2025?
Permalink Submitted by Alan - IRA critic on Fri, 2024-11-01 19:13
It is preferable to complete the rollover prior to year end.
If there is still a 401k balance after year end, the plan will have to distribute the 2025 401k RMD at the same time or prior to the direct rollover. The IRA RMD would not be affected until 2026.
If the direct rollover has been distributed from the plan by year end, but has not been deposited to the IRA, then it becomes an outstanding rollover and the balance that was distributed by the plan must be added to the 12/31/2024 IRA balance used to determine the 2025 IRA RMD.
Of course, the 2025 RMD can be deferred in whole or in part to as late as 4/1/2026. But doing a direct rollover of the 401k in 2025 will nullify any chance to defer the 2025 plan RMD to 2026 should tax planning indicate there is an advantage in doing so. To be able to defer that RMD, the direct rollover must be completed before year end.